Lori Wright and her husband bought a BurgerFi franchised location in Denver in 2017, and, for a while, things were going great.
The pandemic was a setback, as it was for all restaurants. But the unit recovered and returned to double-digit sales increases. The Wrights, who had 25 years of experience in franchising, planned to build two more BurgerFi locations in Colorado.
But then, things started to turn sour for the brand.
In late 2020, the North Palm Beach, Florida-based BurgerFi merged with a special purpose acquisition company, or SPAC, for $100 million in cash and stock. As a result, the then-125-unit chain became a public company, BurgerFi International Inc., or BFI, trading on the Nasdaq.
At the time, BurgerFi’s then-president Charlie Guzzetta said in a statement, “We believe the combination with Opes will allow BurgerFi to reach new heights as we continue to redefine the way the world eats burgers.”
But, for the Wrights and other franchisees, the merger was the beginning of the brand’s downfall.
Four years later, parent company BFI is in Chapter 11 bankruptcy. Last week, the better-burger brand was acquired by its lender in an auction. The sale is scheduled for approval by the court on Nov. 6.
During the bankruptcy, BFI was booted from Nasdaq for failing to comply with financial disclosure requirements. Most of the board resigned. And 31 BurgerFi restaurants have been shuttered over the past two years.
In court filings, BurgerFi officials blamed the bankruptcy on a difficult macroeconomic climate since the pandemic.
But interviews with both current and former franchisees—including some who had leveraged their homes and savings to open their restaurants—paint a different picture. Some asked not to be identified because they’re still in the system and they feared retribution.
Some lay blame on poor decisions, like geographic overreach, cuts in food quality and overreliance on discounting that hampered their ability to make a profit.
Others, however, have raised questions about operational tactics, like taking delivery fees from franchisee royalty accounts.
They also point to financial filings documenting generous executive compensation— including a nearly $300,000 car allowance for a former CEO who was acting as a consultant— and the move of corporate headquarters to a building owned by the executive chairman, at double the rent.
This, while the company struggled to pay vendors.
“It was corporate greed,” said former franchisee Michele McCauley, who says she’s still owed money after selling one of her units to BFI. “These guys are paying themselves so much money. They should have been able to pay the produce company.”
Birth of a better burger
BurgerFi was founded in 2011 in Lauderdale-by-the-Sea, Florida, by John Rosatti. The brand was built around the idea of “redefining the way the world eats burgers,” or BurgerFication, shortened as BurgerFi. On the menu were all-natural meats raised humanely and without the use of antibiotics.
It was born at a time when the fast-casual segment was on the rise and consumers were looking for cleaner ingredients and more-healthful options.
Rosatti grew the chain to about 125 units, including 25 that were company owned, before the Opes shell company stepped in to acquire the brand in a reverse merger in 2020. The move provided the newly formed BFI about $40 million in cash for expansion.
The plan at the time was to step on the gas to grow the brand, both with company-owned units and franchising, along with ghost kitchen outlets in partnership with the now-defunct Reef Kitchens.
But one of BFI’s first big moves in 2021 was to acquire another brand: the 61-unit Anthony’s Coal-Fired Pizza & Wings, which it picked up from private-equity firm L Catterton for $161 million in stock and about $75 million in assumed debt. As a result, L Catterton became one of BurgerFi’s biggest shareholders (though that would later change).
It was a “no-cash” acquisition the company called “opportunistic.” Known for its “well-done” pizzas made in 900-degree, coal-fired ovens, the Fort Lauderdale-based Anthony’s was entirely company owned and mostly operated in Florida.
The casual-dining brand was created by Anthony Bruno in 2002, a Long Islander who had moved to Florida. When he couldn’t find the New York-style pizza he loved there, he decided to make his own, according to the brand’s website. NFL legend Dan Marino was a partner. L Catterton invested in 2015.
For BFI, the acquisition from L Catterton was the first purchase in its effort to “build a premium multi-brand platform,” the press announcement said.
The goal was to give franchise operators more options to grow, while leveraging synergies between the two brands. A smaller, fast-casual prototype of Anthony’s was in the works as a potential franchise format, and the pizza chain was experimenting with a virtual concept, a roasted chicken wings brand offered through its units.
Franchisees, however, said they were baffled by the Anthony’s acquisition. Some dismissed the move as an attempt to boost the stock price.
“Why did that even happen?” said Wright. “They’re not burgers. There was nothing on their menu that would help with purchasing power.”
Quality issues
The new leadership team had growth in mind. At the helm as BFI’s executive chair was the SPAC’s architect Ophir Sternberg, founder and CEO of investment firm Lionheart Capital.
Sternberg and other members of the management team in 2023 increased their holdings in BFI by buying shares from L Catterton. The deal provided $5.1 million in financing at the time, and the board was expanded to include add David Heidecorn, a senior advisor to L Catterton.
Ian Baines, the former president and CEO of Anthony’s and an industry veteran who had led brands ranging from Cheddar’s Scratch Kitchen to Del Frisco’s Restaurant Group, was named CEO of BFI.
Julio Ramirez, a former Burger King executive, remained president and CEO of the burger brand. Patrick Renna was named president of Anthony’s.
The company set out to launch franchising for Anthony’s and that effort came to fruition in 2023 with a co-branded Anthony’s/BurgerFi location, opened by a BurgerFi franchise operator in Kissimmee, Florida.
But on the BurgerFi side, franchisees said they started seeing problems with ingredient quality in 2022.
One operator who asked not to be named said the beef supplier was changed, and the quality of meat plummeted for the brand, whose fundamental promise was a better burger.
The fast-casual BurgerFi was designed to showcase premium ingredients, like never-frozen meat raised without antibiotics. Photo courtesy of BurgerFi International Inc.
“The beef was horrible,” said the franchisee. “They decided to make it more fatty, so it had a higher fat content. It’s gross. It’s hard as a rock. It’s 3.5 ounces and when you cook it, it goes down to 2.7 ounces because there’s so much fat.”
Wright said her unit in Colorado couldn’t even get fresh beef for a time, only frozen. “It got so bad for two years, and so frequent, that we were having to close early because we didn’t have any beef to sell that was thawed.”
The supply problems started after BFI officials declared their intention to focus growth on the Eastern Seaboard.
But at the time, there were about 20 franchise operators west of the Mississippi. “There were enough of us out here to pay attention to with the supply base,” she said.
Franchisees also questioned the company’s approach to delivery.
In September 2023, BurgerFi marketing notified franchisees that it would be “rolling up” a required minimum weekly royalty for third-party delivery by Uber Eats and DoorDash, which the company said was necessary to maintain low commission rates, according to internal memos that were shared with Restaurant Business.
The company automatically “billed,” or added to the weekly royalty pull, $1,000 per store per quarter (or about $76.92 per store per week) for DoorDash and 2% of sales per store per week on Uber Eats deliveries.
Franchisees, however, said they never signed any additional agreements to pull the fees from their account, and some questioned whether it was even legal to pull fees that were not royalties.
And, though the practice continued through September this year, Uber Eats in bankruptcy filings indicated BurgerFi has not paid its delivery fees from May through August.
“Where did our money go?” said Wright.
Executive pay
Another concern was executive turnover and compensation, outlined in U.S. Securities and Exchange Commission filings.
Baines earned $721,000 for the two months he was CEO in 2021, then about $534,000 in 2022. The next year, he announced his retirement, serving for a time as a consultant, earning a total of $616,345—including a reimbursement of $296,825 for a personal vehicle and cell phone allowance.
The company recruited turnover specialist Carl Bachmann to replace Baines as BFI’s CEO in 2023. The former president of Smashburger, Bachmann also became one of the largest individual management team investors in the company, purchasing 63,500 shares of common stock.
He joined with an annual salary of $525,000, plus a $100,000 sign-on bonus. In his first year, he also received up to $50,000 in travel expenses to fly to Florida from his home in New York. Including stock, his compensation topped $2 million in the first year.
Under his employment agreement, he will also be paid $1 million in the event of a sale or change in control, according to SEC filings.
In 2022, BFI moved its corporate headquarters to a building owned by then-executive chairman Sternberg, signing a 10-year-lease. It was a larger space at double the rent.
In December 2022, the then-members of the Franchising Advisory Council asked for a meeting with Sternberg to discuss some of these issues. The request was sent via email.
The next day, the company disbanded the council. Members said they were “fired.” The company then asked franchisees to nominate a new set of representatives to the council, and a new group was appointed. There was no vote.
Sales collapse
Meanwhile, BurgerFi’s sales were plummeting.
It started out well in 2021, with same-store sales up 14% for BurgerFi that year, perhaps boosted by pandemic-year comparisons, and 16 new restaurants opened. It was the last time comparable sales would be positive for the brand and BFI has yet to make a profit.
BurgerFi’s same-store sales declined 7% in fiscal 2022 and 8% in fiscal 2023. In the first quarter of 2024—the only complete earnings report issued this year—the company said systemwide same-store sales for BurgerFi were down 13% (Anthony’s was down 2%). The company’s net loss narrowed to $6.5 million, compared with a loss of $9.2 million the prior year.
But by the second quarter this year, that net loss had tripled to $18.4 million, compared with a net loss of $6 million the prior year, according to the company when announcing the bankruptcy filing.
This, despite Bachmann’s efforts to turn the brand around.
When he stepped into the CEO chair in July 2023, Bachmann pledged to work on the company’s infrastructure, upgrading the POS system and installing better inventory controls. He fired the AI-voice bot that answered the phones at Anthony’s, saying guests and workers didn’t like it. He closed underperforming units, shuttering 14 restaurants in 2023 alone, saying future growth would focus on the Eastern Seaboard in existing markets to maximize brand awareness.
And he upgraded the menu, bringing in new versions of both fried and grilled chicken sandwiches, and even temporarily renaming the brand “ChickenFi.”
The company also debuted a flagship Better Burger Lab unit in New York City, which Bachmann said would serve as a test site for menu innovation.
Those investments, however, did not change the trajectory of sales. BFI defaulted on its credit agreement and then sought Chapter 11 bankruptcy protection in September.
For franchisees like Dilip Kanji, BurgerFi still is a good concept, in terms of menu quality and branding. He feels the company just lost sight of certain basics.
“The people in control of the brand made very—I would say—stupid decisions,” said Kanji, who is president and chairman of Impact Properties, which now works with hotels.
Kanji had a multi-unit agreement, planning at one point to open six. He got three BurgerFi units open the Tampa area in Florida, and, at least initially, he got good results.
But since the company went public, he said, the brand began to fail. He slowly closed his locations, suffering penalties. The last one closed earlier this year.
“As time went by, it got worse and worse,” he said. “For me it was a better business decision to slowly start closing.”
The company shouldn’t have allowed franchisees to open so far from home base, for example, with units in Alaska, Texas and New York he said.
“You just can’t provide the service and support, and maintain brand standards and quality, having them so far apart,” he said, and it diluted the marketing spend.
There were frequent menu changes and equipment changes. The rotation of company executives made it difficult to develop relationships with the corporate office, he said.
BurgerFi fans became addicted to discounts. “People only came for the coupon,” he said. “Once the coupon’s gone, they’re not coming back.”
Fundamentally, he said, the numbers only worked in high-volume locations that could attract a higher-income diner.
“You can’t have a BurgerFi on a highway and expect it to be successful,” he said. “It’s not affordable for everyone.”
The bankruptcy sale
BFI officials declined to comment on the specific issues franchisees raised. The response was a statement about the bankruptcy auction, which company officials said would position both BurgerFi and Anthony's for growth.
The winning bidder for both BurgerFi and Anthony’s in the bankruptcy auction was no surprise: lender TREW Capital Management Private Credit 2 LLC, led by former Famous Dave’s CEO Jeff Crivello.
The sale impacts the 67 company-owned units, which are mostly Anthony’s locations. It remains to be seen what plans Crivello might have for the brands.
In the statement about the sale, company officials said it caps "substantial effort in turning around the company's operations," which have included finding improved vendors and downsizing central staff, "all to give the company and its franchisees the best chance of success."
That leaves BurgerFi franchisees in limbo for now.
“I don’t see a future with a new owner,” said a current franchisee who asked not to be identified. “TREW just cares about making his money back. Whether he knows how bad it was, I don’t know.”
The franchisee said the question now is, “Are you going down with the ship, or are you going to jump off and try to swim?”
Wright, meanwhile, has been asked to serve on the creditors’ committee, even though her unit closed earlier this year. She remains technically a franchisee.
Stepping into that role, she could no longer speak to the press, she said. But before that, she had sent information raising many of these questions to both the bankruptcy court and the U.S. Department of Justice.
“I know I will never be made whole from the investment I put into BurgerFi,” she said. “But I just want there to be some accountability, some fairness for the people who are still out there.”
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