A 61-unit Wendy’s franchisee declared bankruptcy Tuesday after suffering from “post-COVID consumer habits, ever-increasing costs to do business, and significantly higher interest rates,” CEO Andrew Levy said.

Florida-based Starboard Group operates restaurants across Florida, Alabama, Illinois, Missouri, and Wisconsin. The company shuttered nine locations shortly before the filing. Collectively, these stores accounted for $1.5 million of $2 million in annual losses. Two additional units shut down prior to this move as well. More closures of underperforming stores—or ones with large remodel obligations—will likely happen in the future.

Levy stated in the court filing that Wendy’s was not immune from the economic impacts of COVID.

“Wendy’s operations on a global level experienced difficulties including disruptions to its supply chain, hyperinflation affecting food, labor, and food delivery costs, and breakfast stagnation and decreased customer levels,” Levy said. “Wendy’s is not alone in suffering from financial difficulties during this same time period. Burger King and other fast-food retailers across the country have also continued to suffer, and other franchisees and franchisors have closed stores or filed Chapter 11 to restructure their operations.”

Beyond COVID, three key reasons fueled the bankruptcy.

Starboard and Levy first blamed court proceedings on an international agreement that went south. The company had 20 percent interest in a joint venture to build Wendy’s stores in Brazil. However, the locations had huge losses, which put a strain on Starboard’s other management contracts and fees.

Additionally, three years ago, the group was told by Wendy’s to sell its profitable restaurants in Virginia. Levy said their departure meant the remaining locations’ share of management costs increased with less average profits per store.

Thirdly, the CEO noted that Wendy’s mandated extensive remodels, which required “substantial capital expenditures that have modest or no equivalent returns.” Starboard has paid for and constructed many remodels, but several aren’t finished.

In December 2020, Starboard received $49.8 million in loan proceeds. Starting in 2022, the company began making monthly interest-only payments. These costs, in addition to lower sales and higher interest rates, put pressure on Starboard’s portfolio, Levy said. The company still owes $48.8 million to one group and $2.8 million to another lender.

In addition to Wendy’s, Starboard franchises Fuzzy’s Taco Shop, McAlister’s, Cicis Pizza, and Subway. None of the other chains are impacted by the bankruptcy proceedings.

Starboard is one of several quick-service franchisees to declare bankruptcy this year. Three major Burger King franchisees, TOMS King, Meridian Restaurants, and Premier Kings, entered court proceedings. The first two sold their locations, and Premier Kings plans to do the same. Cajun Kings, a Popeyes group under the same entity as Premier Kings, also declared bankruptcy. A McDonald’s operator and a 145-unit Hardee’s restaurateur sought federal protection as well.

Fast Food, Finance, Legal, Operations, Story, Wendy's