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Financing

Garbanzo Mediterranean Grill declares bankruptcy

The fast-casual franchise, struggling before the pandemic, said steep declines in sales and royalty income made matters worse.
Photo courtesy of Garbanzo Mediterranean

Garbanzo Mediterranean Grill declared Chapter 11 bankruptcy protection this week, saying it was left with little choice after sales plunged during the coronavirus pandemic.

The chain, based in Centennial, Colo., has 25 locations, 21 of which are operated by franchisees. It has $16.5 million in secured debt, according to court documents.

In a filing, the company said that it was struggling going into the pandemic. The company had a loss of $2.2 million last year and as of Dec. 24 had negative retained earnings of $22.5 million and $15.6 million in long-term liabilities. It hired a restructuring advisor in February.

The coronavirus made matters worse. The company said that sales were down as much as 75% between March and May and remain down 20% on average. Catering, however, has plunged 90% as events and business functions were shut down, and the company said that royalties from franchisees have fallen by more than 90%, in part because many of the chain’s operators are located on college campuses, many of which have been closed since March.

While many of these locations are expected to reopen this fall, they will do so “under significantly limited operations” that will likely keep down royalty income in the coming months.

Garbanzo has been able to get some sales through delivery, CEO James Park said in a filing, but they “realize little profitability from delivery orders due to the commissions” they pay third-party delivery providers.

The company is declaring bankruptcy to evaluate “various alternatives to satisfy the claims of their vendors and other creditors.”

Garbanzo generated $22.9 million in U.S. system sales last year, according to Restaurant Business sister company Technomic, but average unit volumes declined 1.1%.

Its bankruptcy filing is only the latest in a string of chain bankruptcies as sales plunged and companies struggle to pay off debt, leases or both. Chuck E. Cheese parent CEC Entertainment and California Pizza Kitchen are among those that filed for bankruptcy. But many small franchisors could find themselves in bankruptcy court, too, as franchise royalties plummet.

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