Premier Kings, which owns 172 Burger King locations in the two states, announced that it had filed for Chapter 11 bankruptcy protection in the Bankruptcy Court for the Northern District of Alabama. The franchisee's Oct. 26 filing came after the May 2022 death of owner Manraj "Patrick" Sidhu, whose Popeyes Louisiana Kitchen stores were put into bankruptcy earlier this year for the same reason.
The Montgomery, Alabama-based Premier Kings said operating losses continued even after it closed restaurants – thus necessitating the filing. It was the third time in 2023 that a major major Burger King operator has enforced such a policy, while many others closed restaurants around the country amid the chain's sales and profit difficulties.
Earlier, two massive Burger King operators – Meridian Restaurants and Toms King – filed for bankruptcy and were sold. In both of these cases, however, not all of the stores were sold, and several locations were closed.
Premier Kings placed the restaurants up for sale and hired the investment banker Raymond James & Associates to sell the restaurants. The company closed numerous restaurants to "avoid further losses" and steady the business to prepare a sale. However, those cost-cutting steps didn't work as the company said it encountered pressure from landlords, vendors and secured lenders.
As per the bankruptcy filing, Premier Kings declared $134.5 million in assets and $123.1 million in liabilities. In 2022, it recorded $223 million in sales in 2022 and had an operating loss of $27 million.
The company has agreements with a pair of "stalking horse" bidders – a bid employed to set a minimum price in an auction – for portions of its franchise amounting to around $34 million. Aside from the two, there are no less than 44 possible bidders for at least some of the restaurants under Premier Kings.
RRG of Jacksonville will bid for 44 stores costing $15.5 million in the areas of Savannah, Georgia and Jacksonville, Florida. Meanwhile, Newell-Berg Alliance AL will bid for the sale of 31 stores in North Alabama amounting to $18.5 million.
Burger King investing $400M into marketing, remodels to boost sales
Burger King struggled with low sales coming out of the Wuhan coronavirus (COVID-19) pandemic while costs for labor and food shot up. It previously warned that it expected to spend the end of the year working with franchisees to shut down under-performing stores. It also declared that most of the $10 million of bad debt cost it expects to register in the fourth quarter will come from the U.S. franchises of Burger King. (Related: Burger King to close up to 400 locations in 2023.)
Burger King is subsequently investing $400 million into marketing and remodels to boost sales and has concentrated attentively on improving operations and franchisee profits. According to the company, franchisee profitability is up in the "double digits" thus far this year. It has displayed stronger sales this year while traffic in the final quarter exceeded its rivals.
Executives announced early this month that Burger King parent Restaurant Brands International (RBI) Inc. plans to complete its decrease in under-performing branches during the last quarter of the year, intent on beginning 2024 with a stronger brand portfolio.
The Toronto-based company, which also owns the Tim Hortons, Popeyes Louisiana Kitchen and Firehouse Subs brands, issued earnings for the third quarter ending Septembe r 30, mentioning that Burger King's United States business had flat traffic in the period.
"Looking ahead, we are expecting roughly $10 million of net bad debt expense in Q4 '23 predominantly related to Burger King U.S. We have been working closely with franchisees to transition restaurant portfolios into the hands of strong local operators over the past few quarters," said Matthew Dunnigan, RBI chief financial officer, on an earnings call.
"We prioritized the most distressed situations, closing nonviable restaurants and cleaning up a number of portfolios. We expect to largely finalize the remainder of those workouts and closures by (the) end of year, resulting in elevated bad debt for Q4 but with the benefit of a much-improved foundation entering 2024."
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Watch Martin Brodel talk about Burger King abruptly closing stores for good after confirming 400 outlets will go amid bankruptcy issues.
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