Dive Brief:

• Burger King joined a committee of Meridian Restaurants’ creditors in a motion to allow the franchisee’s debtors to set up the sale of its remaining 96 Burger King units this week, federal court records show. 
• Meridian said in court filings that it has the cash on hand necessary to continue operating its restaurants, and that labor costs and food costs have fallen, contributing to an improvement in four-wall EBITDA.
• Burger King’s efforts align with the brand’s strategy of reorganizing its franchise system into geographically coherent units of 50 stores or fewer, which Josh Kobza, CEO of Restaurant Brands International, announced on Restaurant Brands International’s Q1 2023 earnings call.

Dive Insight:

Burger King said in its filing that an internal reorganization proposed by Meridian was “doomed to fail.” The filing specifically asks the court overseeing the case to end Meridian’s exclusive period to file a Chapter 11 plan on July 1, which would make it possible for the committee of creditors, including Burger King, to organize the sale of Meridian’s assets. 

“The marketing and sale of the Restaurants is the only viable option available to the Debtors, which option is consistent with their fiduciary duties to the stakeholders,” Burger King said. 

Burger King’s desired sale plan would see Meridian’s holdings broken up and sold according to geographic region, with 27 restaurants across Utah and Wyoming, seven in Arizona, 16 in Montana, 25 in the Dakotas and Minnesota, 12 in Kansas and nine in Nebraska. Three of the units in Minnesota are operating without a valid license agreement, Burger King alleged, claiming the franchise agreements for those units expired at the end of March.

According to Burger King’s filings with the court, Meridian missed obligatory deadlines to remodel three restaurants and was missing equipment, such as hoppers at 50 restaurants and outdoor digital menu boards at 40 restaurants. Burger King further alleged that Meridian had violated terms of the franchise agreements by replacing David Harper, who was managing owner of Meridian’s franchise agreements, with James Winder, who is Meridian’s chief restructuring officer.

Meridian claimed Burger King knew of the change in management “for years and has not raised the issue previously.” The franchisee said it disputed Burger King’s factual claims.

Meridian argued that the committee of creditors would be usurping its authority to sell its assets. In its own filing, Meridian said it planned to file a Chapter 11 plan to reorganize the company by June 30.

Burger King’s franchisee system has experienced trouble over the last few quarters as lackluster restaurant-level EBITDA and difficulty raising credit pushed some franchisees into technical default, with Meridian and Toms King Restaurants both filing for Chapter 11 protections. Toms King’s restaurants were sold off in March.

Burger King has warned investors that U.S. closures could hit 400 stores this year, well above normal rates. The effort to consolidate its franchise system into relatively coherent geographical units coincides with the company’s ongoing Reclaim the Flame program, which provides money for marketing and for the renovation or refurbishment of thousands of U.S. Burger Kings.