Portland, Ore.-based Blue Star Donuts declared Chapter 11 bankruptcy protection last week, calling the effects of the coronavirus shutdown on its business “immediate and catastrophic,” according to the filing.
Blue Star, which launched its gourmet doughnut concept in 2012, shut down all eight of its locations around Portland in mid-March amid the pandemic. Blue Star has three licensed locations in the Los Angeles area that are not impacted by the bankruptcy declaration.
The chain’s CEO and founder Katie Poppe said she has been at work on a new business model, “Blue Star 2.0,” which will create a wholesale and e-commerce delivery operation on top of a scaled-down number of retail locations.
“Building out a wholesale and e-commerce delivery operation required—first and foremost—creating a product with a longer shelf-life from time of production to consumption, as well as a product that could be frozen to extend its shelf-life,” Poppe wrote in the bankruptcy filing. “Already, the company has made significant progress.”
But that progress has been hampered by an ongoing dispute with the landlord who owns the brand’s production kitchen space, according to the filing.
Blue Star Donuts has $1.1 million in debt and $1.7 million in assets as of the end of July.
As part of the new business model, the chain is testing selling doughnut holes and mini vegan cake doughnuts in Portland-area grocery stores. But the chain needs additional equipment and production space to store inventory and packaging for the new venture, it said.
“Without cash flow, my vision for Blue Star 2.0 will remain just that: a vision, and nothing more,” Poppe wrote. “It has become clear to me that the only way the company can survive and possibly thrive in the post-Covid-19 world is by seeking Chapter 11 protection to reorganize its business operations and restructure its existing liabilities.”
Blue Star needs to find and build a new production kitchen that allows for wholesale operations as well as fresh-made doughnuts to supply the brand’s three remaining retail locations, she said.
“We have a fantastic management team who’ve been tirelessly problem-solving for months, and we’ve developed some incredibly creative ideas—but no full solution to take us through this part of the storm,” Blue Star noted on social media, in announcing the bankruptcy filing to customers. “Ultimately, we made a decision that we believe will help us pivot, unlock the future and be better than ever.”
Blue Star Donuts is one of a growing number of restaurant concepts than have been forced to file for bankruptcy amid the financial pressures of the pandemic. Chuck E. Cheese Parent CEC Entertainment and California Pizza Kitchen are among the larger chains that have filed in recent months. Earlier this month, 25-unit Garbanzo Mediterranean Grill declared Chapter 11 bankruptcy protection.
Clarification: This story was updated to note the preferred last name of Blue Star CEO Katie Poppe.