Several Popular Fast Food Chains File Chapter 11 Bankruptcy

While some chains are still thriving, others have noted a severe decrease in profits and consequently have been forced to close some of their locations or even file for bankruptcy.

The vast majority of fast food restaurants are franchised, which means people can pay a franchise fee to open a location of one of the popular chains. They own this business.

The promise of low cost and big gains of opening multiple several franchise is why so many people look into owning fast food stores.

For the past 75 years, this model has proven to be wildly successful.

In these cases, the stores often closed, even though the brand was still doing exceptionally well.

Both restaurants are owned by Restaurant Brands International, and the company had to step in immediately to assess why this was happening and also see if they could save some of their locations.

In a press release, RBI explained, “Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023.” And that is in addition to the 60 Popeyes restaurants Carrols owns in six states.

RBI decided to step in and purchase dozens of Carrols, Premiere King, and Meridian locations, though they were still forced to allow some to close.

However, in 2023, the company closed several of its locations after filing for Chapter 11 bankruptcy. The Bojangles website says the restaurants are still open, though the windows are boarded up.

Former employees of these franchisees also reported that they were told to buy chicken from Popeyes or even Safeway (a local grocery store) and sell it as their own when they ran out.

It said, “The franchisee is no longer in the Bojangles system. However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities.”

Many fast food chains have seen a significant decrease in sales over the past few years as they have increased their pricing. With high inflation rates, tens of millions of Americans are living on less to spend than ever before, and many have decided to cut out fast food to save money.

The restaurant didn’t share any details about what caused the decline in traffic. However, the chain previously stated that ineffective marketing, inflation, and needed improvement has lead to many of the restaurants closing their doors.

Despite these closures, Verostek states that the company will open 28 Denny’s in the U.S. However, it is unlikely that any new chains will open in California until it can find a way to be profitable with the increased wages.

“The combination of COVID-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted Red Lobster, resulting in prolonged negative financial contributions to Thai Union and its shareholders,” Thai Union wrote in a news release.

In fact, Governor Newsom in California recently passed a bill that raised the minimum wage for fast food workers from $16 to $20, a jump that could lead to more restaurant closings around the state.

The Wall Street Journal has reported that these preemptive layoffs are an effort by businesses to mitigate the financial impact of the upcoming wage increase.

“We don’t want to work with lobbyists; we want to run our restaurants,” Ghai told KCRA 3, California’s largest operator of Burger King restaurants.

Ojeda said “Pizza Hut was my career for nearly a decade and with little to no notice it was taken away,” highlighting the personal impact of the job reductions.

This decision impacts locations in Los Angeles, Orange, San Bernardino, Riverside, and Ventura counties, demonstrating the extensive reach of the workforce adjustments in anticipation of the new wage law.

The layoffs at Round Table Pizza were also reported by The Wall Street Journal, reflecting a trend among pizza chains to reassess their labor needs.

A statement to FOX Business from FAT Brands, parent company of Round Table Pizza, explained, “The franchisee is transferring their delivery services to third-party. While it is unfortunate, we look at this as a transfer of jobs.” 

This change reflects the broader economic adjustments businesses are making in response to the minimum wage increase.

This has led to longer wait times for customers and higher prices to cover the added labor costs. Hom said “I’m definitely not going to hire anymore,” indicating the difficult decisions business owners are facing.

The increase of minimum wage was a hotly debated topic despite its aiming to support working families. The increase was introduced with an three-tier structure to help business adjust to the changes.

However, the increased wages did lead to price hikes and workers hours getting cut. After business adjust to the new wages, $15 wasn’t enough to support people living in the city.

The legislation has sparked a debate about the workforce in fast food restaurants, with supporters arguing that many workers are not just teenagers in their first job, but adults relying on these positions for their livelihood.

The increase from $16 to $20 will also increase other cost associated with branding, rent, and other fees. Some franchise owners are already talking about cutting hours, raising prices, and closing the doors of some of their restaurants.

California Assembly Republican leader James Gallagher told FOX Business, “Restaurants are struggling to stay above water, and Democrats just threw them an anvil.” Gallagher’s comment underscores the tension between the goal of raising wages and the potential consequences for job availability.

Panera Bread was among the chains initially exempted from the wage increase. However, allegations arose that California Governor Gavin Newsom pushed for this exemption to benefit Greg Flynn, a major donor who owns several Panera locations, leading to scrutiny and debate over the law’s fairness.

This decision was part of an effort to address concerns about the law’s exemptions and ensure its equitable application.

“It would have been nice to have a notice, so we could go get some applications [out], I could prepare them,” Navarro told Fox News. “The best I can do is honestly give them some references.”

“He did blame it on the minimum wage increase. Although, from my understanding, I think we were exempt from it because of the amount of locations that he personally owns. But, he did ultimately blame it on that increase,” she said.

Many fast food workers are battling conflicting feelings as they face uncertainty of how many hours they will receive each week or if they will continue to have a job in the upcoming weeks.

Outside of California, the nationwide changes we’re witnessing, from layoffs to the closure of franchises and major chains declaring bankruptcy, illustrate the volatile nature of the fast-food industry in the U.S.

So, while there will likely always be plenty of fast food options in America, there’s no denying that for the first time in decades, the industry is certainly struggling.