Dive Brief:
- Starboard Group, a major Wendy’s franchisee with leases for 72 restaurants in Florida, Alabama, Illinois, Missouri and Wisconsin, filed for Chapter 11 bankruptcy protection Tuesday, court records show.
- Starboard closed nine of its restaurants shortly before filing for Chapter 11, leaving 61 operating as of Tuesday. Its 72 units are equivalent to about 1.2% of the roughly 6,000 U.S. Wendy’s open in Q3 of 2023.
- The operator said broader macroeconomic forces and factors specific to its business left it indebted. Rising borrowing costs and high inflation have driven a number of restaurant franchisees and small chains into bankruptcy this year, though Starboard is the first major Wendy’s franchisee stricken in the trend.
Dive Insight:
In addition to inflation, Starboard sold two of its subsidiaries in 2020 “at the behest of the franchisor.” Those subsidiaries had “attractive, profitable portfolios and their departure meant the remaining locations’ share of the aggregate management costs increased with less average profits per remaining location.”
Wendy’s also required Starboard to remodel its stores, which included renovated bathrooms and improved dining rooms. Starboard alleged the remodels required extensive capital expenditure incommensurate with returns. It has not, per the filing, completed all the remodels.
Starboard said its balance sheet was burdened by the aftereffects of a joint venture to develop Wendy’s first Brazilian units, beginning in 2015, which sustained “massive losses” due to “overly posh” stores alienating consumers, according to court records.
The broader factors Starboard said led to decreasing profitability included “disruptions to its supply chain, hyperinflation effecting food, labor, and food delivery costs, and breakfast stagnation and decreased customer levels.” The inclusion of breakfast sales in that category may indicate that Wendy’s emphasis on breakfast has not translated to universal franchisee success.
According to the filing, Starboard’s subsidiaries suffered combined losses of about $1.9 million, $1.2 million and $3.4 million in 2021, 2022 and 2023, respectively, and face a combined debt load of approximately $54 million.
Starboard Group operates a number of other brands, with 22 Cicis Pizza locations, 15 Subways, six McAlister’s Deli units, and five Fuzzy’s Taco Shops. The subsidiaries operating those brands have not filed for bankruptcy and are not mentioned in the Wendy’s filings.
Throughout 2023, bankruptcy has been a looming threat for restaurants, particularly QSRs. Three major Burger King franchisees, accounting for hundreds of units, have filed for bankruptcy this year, alongside a Popeye’s franchisee, and a very large CKE franchisee. The latest Burger King bankruptcy was filed in October, and a Denny’s franchisee also sought Chapter 11 protection at the end of October.
