One Of Burger King's Largest Franchisees Is Seeking Bankruptcy Protection

As one of the largest fast-food hamburger empires in the world, second only to McDonald's, Burger King has held royal status for almost 70 years, notes Restaurant Brands International. With almost 19,000 stores across the globe feeding at least 11 million diners daily, per Burger King's website, prosperity is seemingly a given. However, the first day of 2023 revealed a chink in the armor, with a 90-store franchisee in the United States filing for Chapter 11 bankruptcy protection.

Nation's Restaurant News reported just four months earlier that Restaurant Brands International Inc., owner of Burger King and other major quick-service restaurant chains, was launching a "Reclaim the Flame" initiative to invigorate Burger King franchise growth in the United States. A planned $400 million investment in BK stores over two years will go to advertising, technology, systemwide digital platforms, restructuring, and remodeling of about 800 high-yield domestic restaurants.

However, the proactive plans apparently gave little hope to 90 stores operated by a single franchisee, one of the largest in the U.S. system. The franchisee began an in-depth in-house financial analysis in mid-2022, explains Restaurant Dive, leading to the now-enacted bankruptcy plan. The underlying issues are familiar to many in the restaurant industry.

Ongoing struggles weigh heavy

On January 1, Burger King franchisee TOMS King Holdings petitioned a U.S. bankruptcy court in the Northern District of Ohio for bankruptcy relief involving roughly $49 million of debt held by its investment in 90 Burger King franchised stores, according to Restaurant Dive. The locations span the U.S. states of Illinois, Ohio, Pennsylvania, North Carolina, and Virginia.

Reasons cited by Chief Restructuring Officer Daniel Dooley in the supporting petition declaration include issues tied directly to the COVID-19 pandemic, specifically a "loss of foot traffic," decreased labor availability, inflation, and higher costs for shipping, food, and supplies. It also highlights a resulting decline in revenue without a proportionate rebalancing of store rents, debt service, and other unspecified liabilities.

Bank of America is the biggest creditor for TOMS King, holding about $35 million in secured debt, which has been amended periodically by restated, forbearance, and deferral agreements, per the declaration. The remainder of the debt, other than what's held by TOMS King entities, belongs to Burger King and a string of landlords, vendors, and creditors.

TOMS King Holdings, formed in 2012, employs thousands of people, per the company, and the bankruptcy petition seeks approval for continuing wage payments. It's unclear how local communities will be impacted, but TOMS King is active with local charities and foundations. In October 2022, Salem News in Ohio reported on a $75,000 donation to the Veterans of Foreign Wars Unmet Needs program. An annual partnership between the VFW and THOMS King Burger King has raised almost $400,000 since 2017.