Another big fast food franchisee files Chapter 11 bankruptcy

The filing follows Burger King's loss of hundreds of locations and Subway's recent loss of a 48-restaurant franchise partner.

Jun 26, 2024 - 19:30

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Another big fast food franchisee files Chapter 11 bankruptcy

Being a fast food franchisee used to seem like a license to print money. It was hard to not be successful when you had a national brand behind you handling advertising, marketing, and menu development.

That changed during the Covid pandemic. Chains like McDonald's that invested heavily in technology thrived during that period while companies that did not struggled.

It was not easy for many chains to pivot to a drive-through, takeout, and delivery model when many restaurants were forced to shut their dining rooms. That led to a much greater divide between the winners and losers in the fast-food space.

Even as the pandemic ended, higher food costs, rising labor rates, and changing dining habits were a drag on fast food chains. Burger King saw multiple franchisees file for bankruptcy with about 400 restaurants closing. Subway recently lost a 48-location franchisee, and other chains have also seen franchise owners file for bankruptcy.

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Pressures have not eased even as inflation has stabilized. Some markets have adopted a $15 minimum wage (or higher) while consumers have forced chains including McDonald's and Starbucks to add new value offerings to their menus.

It's a challenging market that has forced another major fast-food franchisee to file for Chapter 11 bankruptcy.

Arby's franchise needs more than the meats

Miracle Restaurant Group purchased 45 Arby's locations in 2005. The company has a clear mission statement on its website.

"Our business purpose and our business goals require us to be flexible. Since 2005 when we were formed, we have built new restaurants and opened new markets, we have pursued other restaurant concepts to complement our Arby’s business, and we have faced the harsh realities of the recession of 2009 with courage and perseverance," the company shared.

Miracle Restaurant Group does not mention its Chapter 11 bankruptcy filing on its website, but it acknowledges that it has not always walked an easy road.

"We have faced difficult decisions and have not shied away from making decisions that we felt were in the best interests of our calling. Our hope for the future is firm and our commitment is unwavering," it added.

The company's website also lays out its business philosophy.

"Our company seeks to be successful in our businesses and in our communities. We are proud to be able to offer our employees opportunities in the important business of hospitality. We seek to increase our sales and to earn a return on our labors that allows us to pay our bills and have enough left over to reinvest in growth and profits for our owners," the company shared.

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Long-time Arby's franchisee files for Chapter 11 bankruptcy

The future of Miracle Restaurant Group is in doubt after its June 20 Chapter 11 bankruptcy filing. Having shrunk from 45 locations to 25, the company operates Arby's locations in Illinois, Indiana, Texas, Mississippi, and Louisiana,

This is the second Chapter 11 filing for the company, according to the June 20 filing in the United States Bankruptcy Court of the Eastern District of Louisiana.

"In 2010 the debtor operated over 60 stores and filed for relief under Chapter 11 inthis Court. A plan was confirmed and pursuant to the Plan, a number of stores were closed. The plan was consummated and all creditors were paid in full under the plan," according to the filing.

Miracle Restaurant Group blamed "inflationary pressures in both commodity and labor expenses that price increases could not compensate for. This resulted in significant erosion in the variable cash earned from operations to cover the fixed costs of rent and debt service," in the filing. The company said its latest round of problems started during the Covid pandemic.

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The filing also cited falling sales in 2023 and the first half of 2024.

"The negative same-store sales and lower than anticipated sales from newer stores have resulted in certain stores that operate at extremely low or (at times) negative cashflow on a weekly and monthly basis," the company shared.

Miracle Restaurant Group has requested relief from its landlords and Arby's, but did not receive answers in time to prevent its Chapter 11 bankruptcy filing.

The company has 200 to 999 estimated creditors, $1 million to $10 million in assets, and $1 million to $10 million in liabilities.

Miracle Restaurant Group has 31 full-time employees and 291 part-time workers.