Financing

Subway and Starbucks oust their Brazilian operator

SouthRock Capital, a major food and beverage operator in the country, had its master franchise agreement with Subway terminated after less than a year and lost its license to operate Starbucks.
Subway Brazil
Subway has terminated its relationship with its Brazilian master franchisee. | Photo: Shutterstock.

SouthRock Capital, a private-equity firm that is apparently the largest food and beverage operator in Brazil, has filed for bankruptcy and lost its right to operate Subway and Starbucks in the country, according to reports and documents seen by Restaurant Business.

The firm lost its right to operate Subway in Brazil, which it only acquired last year, according to a letter that Subway sent to franchisees there last week. Subway confirmed the move in a statement over the weekend, saying that it “has terminated its relationship with its Brazil master franchisee.”

SouthRock also lost its license to operate Starbucks in the country last month, according to reports out of Brazil. The firm also operates TGI Fridays and Eataly.

The lost licenses came after SouthRock filed for bankruptcy, according to reports, with debts estimated to be 1.8 billion Brazilian Real, or $370 million U.S. Reports cited high inflation and persistently high interest rates.

But SouthRock has only recently emerged to become a major force. The company was founded in 2015 and started by operating in airports around the country. It has operated TGI Fridays and Starbucks branches since 2018. At the time, Starbucks operated 113 locations in Brazil. That had grown to about 190.

The Subway deal came more recently. The sandwich giant inked its master franchise deal with SouthRock in Brazil late last year, part of a massive effort on the company’s part to ramp up its international store growth.

Subway sent a letter to franchisees in the country last week, saying it had terminated its relationship with Subway do Brasil Ltda, the name of the SouthRock-owned master franchisee. The letter said that the franchise operator hired a chief restructuring officer to replace the CEO and CFO of SouthRock.

“The global Subway organization is fully committed to ensuring the growth and long-term success of the brand in Brazil and minimizing any impact to our local franchisees and their restaurants, ensuring that our guests may continue enjoying freshly made, high-quality delicious food,” Subway said in its statement.

Still, SouthRock was a major operator in a large country, apparently undone by many of the same factors that have continued to push a number of U.S. operators into bankruptcy. It made the filing less than a year after inking the Subway deal and eight months after it announced an expansion of Starbucks in the country.

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