7 franchises that went bankrupt

When these well-known brands went bust, franchise owners were left to soldier on with a tarnished brand.

July 17, 2009

7 franchises that went bankrupt
When these well-known brands went bust, franchise owners were left to soldier on with a tarnished brand.
Emily Maltby


1. Bankruptcy monster eats cookies
Mrs. Fields
Salt Lake City, Utah

In August 2008, Mrs. Fields Famous, the parent brand of 1,200 TCBY and Mrs. Fields Cookies stores, filed for Chapter 11 bankruptcy. It didn't last long. In October, the company emerged, having restructured its $196 million in debt down to $50 million. Its franchisees kept operating throughout.


2. Rebuilding from the ground up
Cork and Olive

This Florida wine retail franchise grew to eight company-owned stores and nine franchisees before filing for Chapter 11 bankruptcy in June 2008, just four years after it opened. All the company-owned stores shuttered, laying off 40 workers. News of the filing didn't reach franchisees until a laid-off worker from a company applied for a job at a franchisee's store. Today, the franchisees meet regularly to discuss how to keep their brand alive without the parent company.


3. Bennigan's: Still here
Plano, Texas

The restaurant chain closed all of its corporate locations when it filed for Chapter 7 in July 2008. Its 138 franchisees were left in PR hell, struggling to convince patrons that they were still open for business.

In October 2008, the Eastern District of Texas' bankruptcy court approved the acquisition of Bennigan's by private equity firm Atalaya Capital, which quickly swept in to reopen the closed corporate stores. The effort has been a success — many franchisees now own and operate former corporate stores in cities such as Santa Clara, Calif.; Charleston, W.Va. and Chicago.


4. Left in limbo
Long Island City, N.Y.

Catchy 1-800-MATTRES jingles couldn't pull in enough sales as the economy dipped. The well-known mattress company chipped away its operating costs, closing almost 20 showrooms and warehouses, before throwing in the towel and declaring bankruptcy in mid-March.

Dial-A-Mattress filed for Chapter 7 — the kind that involves liquidation — before switching several days later to Chapter 11 bankruptcy, which gave it a shot at rehabilitation. The company tried to sell its assets to competitor Sleepy's that same month, but one of its franchisees attempted to scuttle the sale. Consolidated Mattress Co., a franchisee that operates 1-800-Mattress' telemarketing business in certain regions, objected to the deal because it gave Sleepy's the option of rejecting existing franchise agreements.

1-800-Mattress went to auction in May and Sleepy's won with a bid of $25 million. The bankruptcy court approved the sale, adding that if Sleepy's chose to reject franchise agreements, that would be an appropriate business judgment decision. Franchisees are waiting for the next shoe to drop.


5. Repeat offender
Bally Total Fitness

It was a déjà vu for the health club chain in December 2008 when it filed for Chapter 11, a mere 14 months after emerging from its first Chapter 11 filing in July 2007. Just weeks ago, Bally signed an agreement to emerge from bankruptcy by restructuring the $1.5 billion in debt it had accrued and by granting 94% of the company's equity to lenders such as J.P. Morgan.


6. A glutton for debt
Santa Monica, Calif.

Fatburger Restaurants of California and Fatburger Restaurants of Nevada, both subsidiaries of Fatburger Corp, filed for Chapter 11 in April. According to the Wall Street Journal, the parent company was not included in the filing, but the two subsidiaries accounted for 72% its total revenue in 2008. The bankruptcy came under pressure from G.E. Capital Business Asset Funding, which Fatburger owned nearly $3.9 million for defaulted loans. The company's 90 franchise owners are waiting to see what happens next.


7. A smaller Buffet
Buffets Inc.
Eagan, Minn.

Citing the depressed economy, Buffets Holdings filed for reorganization under Chapter 11 in January 2008. The steak restaurant chain, which controlled outlets such as the Old Country Buffet, HomeTown Buffet, and Ryan's, had $964 million in assets and more than $1 billion in debt.

While the company initially said that all locations would stay open throughout its bankruptcy, 52 out of the 626 restaurants ended up closing, according to Franchise Times. On April 28, the company emerged from bankruptcy with a new balance sheet and reduced debt.


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