USA- Pizza Hut franchisee EYM Pizza filed for Chapter 11 bankruptcy protection on July 11 from the US Bankruptcy Court for Texas’ Eastern District.
EYM Pizza listed the franchiser and Manufacturers bank as its top unsecured creditors, with claims of US$2.2 million and US$21 million.
The Pizza Hut operator owns around 140 different locations in South Carolina, Georgia, Indiana, Illinois, and Wisconsin. In June, the operator closed 12 outlets in Ohio and Indiana. Pizza Hut is expected to transfer the locations to different owners.
The bankruptcy filing is the latest iteration of the legal battle between Pizza Hut and one of its largest franchisees, dating back as far as March. EYM Pizza initially sued its franchiser for breaching its contractual agreement by failing to remain competitive and not adapting to modern technology and market-driven practices.
In June, Pizza Hut countersued, revealing EYM Pizza is among the worst performing franchisees. The franchisee’s same-store sales declined by 9.97% from 2019 to 2023, compared to Pizza Hut’s consolidated same-store sales growth of 7% in the same period.
According to the franchiser, EYM Pizza had a recorded failure rate of 12.4% between February 2023 and February 2024, compared to the average failure rate of 3.2% for all its other franchisees.
The franchiser accused its operator of poor operational performance owing to poor management on its side, failing to meet its development goals, and failing to make regular, timely payments to the franchiser. Pizza Hut revealed that EYM Pizza was behind by over US$3 million by the end of 2022 and defaulted again for US$2.5 million in March 2023, shortly before the initial lawsuit was filed.
The legal battle between the two entities is a reflection of the current troubles plaguing the fast food industry owing to high inflation and inadequate access to capital.
Franchisees in the US have particularly struggled with increasing operational and labor costs owing to high inflation and difficulty raising required capital for their operations, which are caused primarily by high interest rates.
Earlier in the year Arby’s franchisee Miracle Restaurant Group and RRG, Popeyes franchisee both filed for Chapter 11 bankruptcy protection.
In 2023, several Burger King, Popeyes, Denny’s, and McDonald’s filed for bankruptcy.
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