Meridian Restaurants Unlimited, one of Burger King’s largest franchisees with 118 locations, declared federal bankruptcy protection this month, citing a combination of low sales and skyrocketing costs for food and labor.
The Utah-based Meridian operates restaurants in Utah, Montana, Wyoming, Minnesota, Nebraska, Kansas, Arizona, North and South Dakota. The company had $14 million in unsecured loans with City National Bank.
But the company’s biggest issue is sales and costs. According to court filings, the company acquired locations with lower-than-average sales, believing it could improve their results. Meridian’s unit volumes are lower than average for the Burger King system, which itself is a relatively low $1.4 million per location—about $500,000 less than Wendy’s and less than half that of McDonald’s.
At the same time, costs for food and labor have taken off. According to court documents, wage rates have increased 33% over the past two years, while food costs are up 22%. The average wage is $4.38 per hour higher than it was in April 2020, according to court documents.
The pandemic, and Burger King’s performance overall, have resulted in a decline in foot traffic and revenue “without proportionate decreases in rental obligations, debt service and other liabilities.”
Because the company’s restaurants had lower-than-average volumes from the get-go, they had “greater sensitivity to the recent, dramatic rise in labor, commodity and maintenance costs.”
The filing notes that some restaurants have operated at a loss “for many years,” making it difficult for the company to meet its financial obligations.
Meridian, however, believes that recent improvements in customer service scores and work by Burger King to identify potential cost savings and margin improvements could pave the way for a recovery. The company needs a financial restructuring to accomplish that, according to the filing.
This is the second major bankruptcy filing by a Burger King franchisee this year, following the filing in January by the 90-unit Toms King. Some of the company’s biggest franchisees had their bonds downgraded last year. And average per-store EBITDA, or earnings before interest, taxes, depreciation and amortization, declined to $140,000 per location in 2022, down 22% since 2018.
It comes after Burger King’s sales struggles in recent years conspired with generationally high inflation to put the brand in a bind. Burger King announced a $400 million revitalization initiative, called “Reclaim the Flame,” that features assistance for remodels and a major investment in marketing. That effort has shown some early results.
At the same time, the company acknowledged that its revitalization would still result in franchisees filing for bankruptcy or selling their business to other operators.
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