Burger King's Third Major Franchisee Files Chapter 11 Bankruptcy Due to Inflation Rate

In the United States, different kinds of businesses are adversely impacted by the inflation rate as a whole. Businesses operating within the food industry, specifically the Burger King fast food chain, are among the most severely affected by this issue. As a result, numerous reports indicate that the third major franchisee of the company has filed for bankruptcy under Chapter 11.

Chapter 11 Bankruptcy on Burger King's Third Major Franchise

(Photo : Pixabay/Burger King)

Based on an article from the United States Court, when a bankruptcy petition is submitted under Chapter 11 of the United States Bankruptcy Code, it is often called a "reorganization" bankruptcy. In most cases, the debtor retains possession that assumes the duties and powers of a trustee, is permitted to continue operating its business, and, with the court's agreement, is permitted to borrow additional funds. Creditors whose rights have been affected may reportedly vote on a proposed reorganization plan, and the court may sanction the plan if it receives the necessary votes and fulfills specific legal prerequisites.

As per The Street, due to the current state of the economy, many things have gone wrong that placed restaurant businesses in danger. The supply chain issues caused certain products to become more expensive and difficult to acquire. At McDonald's, a firm built around its supply chain, this situation occurred on a broad scale. MCD needed to restrict the selling of french fries in particular markets.

Moreover, due to the expensive cost of chicken wings, some restaurant chains resorted to offering chicken quadriceps instead and reducing the price of boneless wings. As mentioned, the situation has escalated to the point where a third significant Burger King franchisee has been forced into bankruptcy. Using a franchise model, Burger King manages their business. This means that in exchange for operating Burger King restaurants in specified geographic regions, owners pay Restaurant Brands International (QSR) a fee and a percentage of sales.

However, even though this model is more cost-effective for the company than the alternative of owning and operating its stores, it exposes the company to financial difficulties since one of its operators experiences financial difficulties. This year, three of Burger King's major franchise partners reportedly have filed for bankruptcy. During the first three months of the year, Meridian Restaurants Unlimited, responsible for the operation of 115 Burger Kings, and Toms King, which had 90 restaurants, both filed for bankruptcy under Chapter 11.

Premier Kings, which has 172 Burger King outlets and has filed for bankruptcy under Chapter 11 of the United States Code, has joined them. On the other hand, earlier this year, a subsidiary firm called Premier Cajun Kings, responsible for operating 19 Popeye's outlets, also filed for bankruptcy for the eleventh chapter.

Struggling Fast Food Restaurants in 2023

Since the beginning of the pandemic, the number of businesses that have filed for bankruptcy has decreased in recent years. Nevertheless, when it comes to the restaurant industry and bankruptcy, the previous year was a significant one. In 2022, two well-known brands declared bankruptcy. Happy Joe's, a Midwest pizza chain, filed for Chapter 11 bankruptcy in September, while Bertucci's Brick Oven Pizza repeated in December for the second time in four years. In addition, some restaurant franchises disappeared from the map. It was the summer of last year when Hale & Hearty, a prominent New York City lunch restaurant, closed its remaining sixteen locations.

In 2023, there have been even more instances of restaurants going bankrupt than in the previous year. Several variables explain this worrying pattern. The United States economy is shaky, and inflation remains worrying. Restaurants face labor shortages and rising food, energy, construction, and equipment costs. Thus, owners and operators of restaurants like Burger King, Hardee's, Popeyes, Corner Bakery, and McDonald's have been facing an increasingly challenging environment due to the accumulation of all of these factors this year.