Financing

A big Burger King franchisee declares bankruptcy

TOMS King Holdings, which operates 90 locations in Illinois, Ohio, Pennsylvania and Virginia, blamed the pandemic for hurting traffic and inflation for draining cash flow.
Burger King franchisee bankruptcy
A large Burger King operator declared bankruptcy, blaming the pandemic and inflation. / Photograph: Shutterstock.

TOMS King Holdings, a 90-unit Burger King operator with locations in four states, declared bankruptcy this week, blaming the pandemic and subsequent inflation challenges for draining its cash flow and making it unable to pay its debt.

The company is one of the burger chain's largest franchisees and operates locations in Illinois, Ohio, Pennsylvania and Virginia. It filed for Chapter 11 bankruptcy protection with $35.5 million in secured debt and another $14 million in unsecured obligations, according to court documents. TOMS plans to sell its restaurants through the bankruptcy process.

TOMS in court filings said that its business “suffered significantly from [a] loss of foot traffic, resulting in declining revenue without proportionate decreases in rental obligations, debt service and other liabilities.”

The company then noted that higher costs for shipping and food, a lack of labor and overall inflation exacerbated its problems with cash flow. While some of TOMS’ restaurants are profitable, the company said, others are losing money, making it unable to make its debt payments.

TOMS started working with its lenders and its franchisor to restructure last year. The company hired a restructuring advisor that ultimately recommended filing for bankruptcy. The company appointed RJ Dourney, the former CEO of the bakery-café chain Cosi, to be an independent manager of the business. It also appointed Daniel Dooley, CEO of the consulting firm MorrisAnderson, to be its chief restructuring officer.

The bankruptcy filing follows a challenging period for Burger King in general. The chain’s sales struggled going into the pandemic and didn’t recover in 2020 and 2021, even as competitors like McDonald’s and Wendy’s reported strong sales. Some key marketing efforts also failed, such as its 2021 introduction of a hand-breaded chicken sandwich.

While Burger King has overhauled management and its parent company is investing $400 million into the brand’s revitalization, the combination of weak sales and soaring food and labor costs hurt the chain’s operators. Credit ratings agencies downgraded multiple Burger King operators last year over such challenges.

 

In a late statement, Burger King suggested that the restaurants will be sold to existing franchisees. “Over the next year or so, we anticipate a few franchisees will likely leave the system, and we will proactively manage those transitions,” the company said. “The restaurants will ultimately be owned by high-performing franchisees and other proven operators from the restaurant industry.”

UPDATE: This story has been updated to include comment from Burger King.

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