Corner Bakery, the fast-casual bakery-café chain once tagged as a potential rival to Panera Bread but which has struggled as people stopped coming into the office, sought Chapter 11 bankruptcy protection this week as it seeks to fend off an effort by creditors to take control of the company.
The chain, which finished 2021 with 161 locations but appears to have far fewer now, has $33.8 million in secured debt, a legacy of debt taken out in 2017 that investment firm Pandya Group inherited when it bought Corner Bakery from Roark Capital in 2020.
SSCP Restaurant Investors acquired that debt and made moves to take the chain over, establishing a sale process this week and prompting the bankruptcy filing, according to court documents. Corner Bakery had been in talks to pay off the debt before SSCP bought the rights to that debt on the secondary market. The fast-casual chain disputes the amount it owes, saying it owes between $20 million and $24 million.
Yet Corner Bakery has struggled for years with weakening sales and shifts in consumer behavior. Unit volumes were falling before the pandemic, according to court documents, which led Roark to hire restructuring advisers and explore strategic alternatives.
The pandemic hit in March 2020 and one month later it was sold to Pandya Restaurant Growth Brands, a subsidiary of Rohan Group of Companies, the Pizza Hut operator that also bought the fast-casual chain Boston Market around that same time.
Yet that era was difficult for urban fast-casual chains such as Corner Bakery, which has historically relied on office workers who stopped by for breakfast or took a break during lunch. The chain also had a healthy business catering workplace functions.
Much of that stopped during the pandemic, and workers have been slow to return to offices since then.
The cost environment also did Corner Bakery few favors, with rising costs for food and wages. In addition, the company said that landlords “have been increasingly impatient” in the post-COVID environment.
Corner Bakery says it has many profitable locations, but others “are underperforming and burdened the company.”
Corner Bakery defaulted on its loans last year.
It is uncertain how many locations the brand has right now. But according to Technomic, the chain had 161 locations at the end of 2021, down from 196 five years earlier. Yet that 2021 number included 50 franchisee-owned locations. Court documents said there are now just 14 franchisee locations.
Meanwhile, opportunistic investors have in recent years taken advantage of secondary credit markets to take bets on struggling concepts, acquiring debt for a fraction of what is owed and then using their status as a secured lender to take over the company. Secured lenders whose debt goes unpaid can foreclose on a company’s assets and are the first to be paid in a bankruptcy process.
SSCP acquired that debt earlier this year and this month declared the debt in default. Corner Bakery filed for bankruptcy on Wednesday, the day before a scheduled sale of the company by SSCP.
Corner Bakery said that a bankruptcy filing would enable the company to seek new capital and preserve the state of the business. The company also said it is “in the process of investigating” SSCP’s actions and the amounts owed to the creditor.
Still, the bankruptcy filing of Corner Bakery is indicative of a challenging environment for restaurant companies coming out of the pandemic. With government assistance now gone and profits down following a challenging 2022, many companies that didn’t generate strong enough sales and profits coming out of that era may find themselves on the outs with lenders and landlords.
Toms King, a big Burger King franchisee, sought debt protection earlier this year. The drive-thru burger chain Checkers is looking to restructure its debt and Red Lobster is seeking rent concessions. The brick oven pizza chain Bertucci’s declared bankruptcy earlier this year.
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