Fast-casual chain Garbanzo Mediterranean Fresh filed bankruptcy last week, citing the overwhelming effects of COVID.
The brand oversees 25 units, 21 of which are franchises. The filing only covers the four company-run stores.
Garbanzo entered bankruptcy with $17.5 million in debt. Of that amount, $16.5 million is secured.
According to the bankruptcy filing, Garbanzo faced financial distress prior to the pandemic. As of December 24, the company had negative retained earnings of roughly $22.5 million and long-term liabilities of $15.6 million. It saw a loss of $2.2 million in 2019.
The situation was exacerbated in March when Garbanzo was forced to shut down dining rooms and switch to off-premises only. The filing said the restaurant experiences little profitability from delivery because of third-party fees. Catering was among the chain’s most successful channels, but sales declined because of stay-at-home orders.
As a result, overall sales were down on average between 50 percent and 75 percent from March to mid-May. As of now, sales are down 20 percent on average, but catering is still down 90 percent. Garbanzo attributed the improvement in sales to reopening dining rooms at 50 percent capacity.
The court filing described franchise sales as experiencing a “quick and severe drop.” About 42 percent of franchises are located at colleges and universities and have been closed since March. The units plan to open in the fall under significantly limited operations when school starts. However, Garbanzo expects revenue from these units to continue dropping, the filing said. Additionally, franchise royalty income has decreased by more than 90 percent since the onset of COVID.
“With no other alternatives available, the Debtors entered these bankruptcy proceedings to preserve the value of their business and assets,” the filing said. “Through these Chapter 11 Cases, the Debtors intend to evaluate various alternatives to satisfy the claims of their vendors and other creditors by way of a reorganization that will allow the Debtors’ to position themselves for long- term success under the applicable provisions of the Bankruptcy Code.”
CEO James Park told the Denver Business Journal that stores will remain open during bankruptcy proceedings and that Garbanzo will look into onboarding a new partner and coming out of bankruptcy on its own. Park added that the restaurant will try to renegotiate contracts with landlords. He also told the media outlet that the company is still planning to open six new stores by 2021 and look for more franchisees to help restart growth after bankruptcy proceedings.
Park said some suburban restaurants are witnessed record revenues, but with urban revenues and catering recovering slowly, the company needs immediate relief, the Denver Business Journal reported. At certain units, catering mixes 30 percent.
The news comes a little more than a year after Garbanzo announced major growth initiatives. In June 2019, the chain planned to add 50 new locations to the development pipeline annually, focusing on the Rocky Mountain, Midwest, and Texas territories. Before that reveal, Garbanzo signed a five-store deal in Boston and a 25-plus agreement covering Indiana, Kentucky, and Southwest Ohio.