This is part two of three in a series about Burgerim. Read part one here.
Jeffrey Russell was laid off from his job as a senior credit specialist at Tesla two years ago. He had a house, some money in the bank and a determination to never have the feeling of being laid off again.
He looked into franchising and came across Burgerim, ultimately buying a location in Glendale, Calif.
Six months later, Russell is homeless.
“I sold my house,” he said. “I sold my house,” he repeated, almost as if he couldn’t believe so himself. “I sold everything. I don’t have an apartment. I’m staying on my sister’s couch.”
Burgerim signed up hundreds of people like Russell, who had little experience but some money in the bank. These franchisees bought into an idea: They could live the American dream and be their own boss.
Photograph of Jeffrey Russell by Christina Gandolfo
We spoke with more than 20 franchisees in all. They were nurses, professionals, accountants, cooks, engineers and educators. They planned their franchises as investments, hoping to put hard work into owning their own business, something they could leave for their children. These franchisees bought into Burgerim’s emotional pitches and promises of a low initial investment and strong profitability.
Instead, they got a nightmare—one made even worse when the company went dark for more than six weeks around Thanksgiving. They serve as a brutal reminder that, in the days of asset-light business models, it’s the franchisee that bears all the risk.
“The franchisee is the small guy,” said Robert Jameson, who was able to get out from under his location before it was built—but still was out $65,000 of his own money, including the $50,000 franchise fee and $15,000 for the architect. “But they’re the ones who take on all of the risk. They have all of the contracts. And when something like this happens, they’re the ones left with the aftermath.”
These franchisees detailed their experiences, all hoping to prevent this from happening to others. Here are some of their stories.
Emptied accounts
Justin Carter had built up a bit of savings and was looking for a long-term franchise when he saw an ad for Burgerim on Instagram just over a year ago. The ad was interesting: The social influencer Foodgod had a deal to promote Burgerim. And the chain was growing. “It just seemed like a franchise that was on the rise,” Carter said. “How can a burger franchise go wrong? America loves their burgers.”
He called the company. They quickly talked him into signing two franchise agreements for $80,000, rather than one for $50,000. He was also told they had a location in downtown Las Vegas ready to go. So he and his mother came up with the $80,000 for the franchise fee.
Yet that Vegas location turned out to be unavailable. “There was nothing,” he said.
After months of struggling to find a different location, Carter asked for his money back. He had another reason for the request: His father had been diagnosed with brain cancer, and his mother needed that money immediately.
Burgerim, unlike many other franchises, told operators they could get their fees back if they couldn’t find a location after six months. The company agreed to cancel Carter’s franchise agreement and refund the fee in six months.
But despite numerous calls to headquarters, the Carters still haven’t been paid. They are one of dozens or more operators who were promised refunds only to have those promises broken. We spoke with a half-dozen such operators, some of whom, like the Carters, had little money available beyond those savings.
“I guess I was gullible in this situation,” Carter said. “I’m glad we didn’t find a location. Then we’d have to pay loans, and for me it’s a lot of money. I don’t have a lot of money. That was savings.”
Deep in debt, even without a store
Alex Damas just wanted a family business, something that would give his mom a job and something he could potentially leave for his two daughters. Burgerim seemed like a good idea. Damas had a franchising background, and his mother knew how to run a restaurant. “Between her and I, we would make that happen,” Damas said. “She had the experience. We thought this was a good deal to get it going for her.”
Damas invested his own money and took out loans, sinking nearly $500,000 to open a location in Hallandale Beach, Fla. His location was 90% complete and getting ready for a soft open late last year.
And then Damas was evicted.
Burgerim, he said, was apparently on the hook for past-due rent at the location. “All of a sudden they stopped paying, and [the landlord] got no response and no calls.”
He took out personal loans to fund the business after being told he couldn’t get a Small Business Association loan. Damas kept his job and is repaying his loans, hoping for things to get better.
“I’m working with the different loan companies offering some kind of a reasonable payback plan until I see light at the end of the tunnel,” he said. “I’m just working, paying every little bit I can back.”
Longtime dream dashed in months
Steve Sloney opened his Burgerim in the shadow of corporate office buildings in Bingham Farms, Mich., in December 2018. The following February, he was named the company’s operator of the month.
Sloney was, in fact, made for this. He’s a chef and his wife an accountant. They’d been thinking of starting their own restaurant for 20 years but ultimately decided to open a Burgerim franchise.
“If we can’t do it,” he said, “nobody would be able to do it.”
Sloney had some doubts, to be sure. The sales pressure in particular was intense. Yet he bought into the company’s promises of high volumes and profitability. And like others, he really wanted his own restaurant. “I was worried,” he said. “But not worried enough.”
Sloney was directed to a loan broker, who engineered a complex series of 17 smaller loans to fund the business, which proved to be expensive and required him to start making payments immediately. But he was able to build the store for around $400,000 and open within a few months.
His experience helped him run the kitchen effectively. Yet his store couldn’t generate strong enough sales. Food and labor costs were simply too high.
“I knew each month exactly what I needed to bring in,” he said. “My break-even point was $15,000 a week. Instead I got $10,000 to $12,000.”
He continued, “That’s only a $3,000 difference. If I broke it down to seven days, that’s just $350 a day, only 20 to 30 more people a day, and then I would have broke even. I was very close. I just couldn’t do it.”
Seven months later, Sloney burned through his working capital and shut his doors. That dream lasted just a few months.
He admits he was in a bad place in the aftermath of the closure. “It affects the whole family,” Sloney said. “It affects everybody, your friends, your family, your workers.”
Photograph courtesy of Steve Sloney
Imminent bankruptcy
Marc Genece’s entrepreneurial career lasted 10 months. Genece spent years working for Panera Bread and enjoyed the restaurant business. But he’d grown tired of the corporate world and decided to give franchising a try.
Genece had some money in the bank, an inheritance from his father. He signed up with Burgerim in 2017, flew out to California, met with the owner, Oren Loni, and visited a location in Hollywood.
“They made a lot of promises,” Genece said. For example, the company told him construction would take three to six months and that he’d be profitable immediately.
Genece used his savings to fund his South Florida restaurant. Construction took much longer than expected before his store opened in July 2018. The lease was $11,000 a month, nearly twice what even some former company executives believe is workable. Food costs also proved to be high along with labor costs.
The restaurant had a good first day and then struggled thereafter, generating about $40,000 in sales a month, or less than $500,000 annualized. “We were running negative from the first day,” Genece said. His store closed 10 months after it opened.
Like many operators, he sunk money into the business to get it going. Already out his $350,000 initial investment, he took out another $100,000 in loans. But, unable to pay the rent, his landlord ultimately evicted the restaurant and shut it down.
He has a job today but will likely have to file for bankruptcy protection. “I took a big hit,” he said. “All of our savings, everything.”
“Now it’s something I can talk about,” he added. “But before, I was just lost.”
Cross-country move with a lack of support
Kenneth Laskin figured he had the right franchise this time. Sure, he’d heard of Loni’s problems with other concepts back in Israel, where Laskin has family. But Burgerim had great food and a unique idea, and Laskin had some experience: He was a Quiznos operator more than a decade ago. He opened a unit of the sandwich chain in 2002, did great for a few years and then closed in 2007, after Quiznos added a bunch of franchises in his market, some less than a mile from his store.
This time, Laskin wanted a location where nobody else would open, so he decided to develop a unit in Eugene, Ore., which happened to be on the other side of the country from his New York City-area home. “I thought we’d be a little protected,” he said. “We’d be the only one around.”
Laskin opened his Burgerim in October, and “it went really well.” But business tapered in December, when he generated only $42,000 in revenue, and it slowed further in January.
He figured sales would decline, and thus, he planned a grand opening for this month. But that plan was decided “before all this nonsense,” when Loni left the country and the company virtually shut down for several weeks.
Then the marketing people he’d been working with on his grand opening “just disappeared off the face of the earth.”
“There was just nobody there,” Laskin said. “Everybody’s email bounced back, and everybody’s phone numbers stopped working.”
Laskin’s restaurant has lost money from the get-go. He borrowed “a couple hundred thousand” against his home and took out equipment loans to get the restaurant started.
These days he’s working on his own to keep it going. He’s improved service times from more than 30 minutes to eight or nine. And he and his wife are working on the menu. After seeing poor Yelp reviews, he upgraded the burger buns. And they’ve already started buying food from local suppliers after distributor US Foods ran out of Burgerim’s proprietary food.
Fortunately, Laskin loves Eugene, and he’s getting help from locals to stay open. “I have some people helping me,” Laskin said. “I have a local city councilman who likes Burgerim and wants us to survive. He offered to hold a rally for himself here. We’ll tie it with the grand opening. We’re just trying to come up with ideas.”
He plans to keep the brand name as long as it still works. “I don’t have money for new signs,” he said.
Stuck, despite a new plan
Phil Schreuders had a plan. He had a pair of investors and a concept idea that would have turned his Burgerim location in Burbank, Calif., into a local restaurant aimed at tourists. The restaurant would have been named Back Story, a play on the area’s movie studios. That plan was supposed to save Schreuders’ restaurant career.
Previously, he and his wife wanted to open a wine bar, but came across the Burgerim franchise and thought its bar component would work well.
Schreuders opened his restaurant last April, having sunk more than $550,000 into its construction—$200,000 more than he expected—and pumped tens of thousands more into keeping it going. And then he ran into all sorts of trouble once it opened. He shifted to table service, because the model proved too difficult to get food prepared quickly. His rent and loans were costly. Food and labor costs were too high.
Worse, his liquor license was delayed due to local politics, which cost his restaurant important revenue.
Schreuders says he lost $34,000 a month on his restaurant. He received a bridge loan to help fund the business. He used personal credit cards. And then he sold his house to pay off the credit cards and that bridge loan, with the hope of refinancing his debt into a more manageable Small Business Association loan—only to be told he needed a house as collateral.
The rebranding would have worked, but Schreuders’ landlord wanted Burgerim to release him from the franchise agreement.
But the company never did, having shut down after Thanksgiving.
On Dec. 19, after running out of money to put back into the business and just eight months after opening, Schreuders closed the restaurant. Five days later, he would have been able to start serving alcohol.
He’d sunk everything into it. “Everything was used to try to keep this thing afloat,” he said. “Big lump sums of our personal cash were moved over to make payroll. Not one dime went my way.”
Schreuders was speaking from his old restaurant, having just cleaned it to get it ready for the landlord. An auction company had just removed his equipment, which will be sold to help pay off the debts. He and his wife filed for personal bankruptcy.
“It feels like I just opened the place,” he said. “It looks brand new. I’m sitting in here, in an empty room. It’s a little depressing.”
Part one: The Burgerim disaster
Part three: As Burgerim grew, protection for franchisees fell short
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