Would You Buy a Bankrupt Franchise?
If you’re looking to buy a franchise, you might want to scratch Friendly’s off your list. The burger and ice cream chain, a victim of the anemic economy, filed for Chapter 11 bankruptcy protection last week.
Friendly’s plans to shut down 65 restaurants as part of the restructuring, though its 424 other locations will remain open for business.
Ironically, the company was founded 76 years ago in the heart of the depression. It survived wars, natural disasters, social upheavals, and two OJ trials. But it couldn’t survive the Great Recession.
Friendly’s, which is currently owned by private equity firm Sun Capital Partners, has about $297 million in debt and $100 million in assets. Which, if you do the math, is not so good.
Also not so good is Sun Capital’s track record with the other restaurants in its portfolio.
Sun Capital’s restaurant holdings include Boston Market, Fazoli’s Restaurants, and Real Mex Restaurants. Real Mex, which operates the Chevys, El Torito, and Acapulco chains, filed for bankruptcy last week. Two other brands at least partially owned by Sun Capital, The Souper Salad and Grandy’s, filed for Chapter 11 last month.
Is there any good news in all of this? If you go to the Friendly’s site, you’ll see that the chain is keeping a positive attitude. It is still trying to attract franchisees by trumpeting the fact that it was ranked among the Top 250 franchised restaurants by Entrepreneur for 2010.
“And now Friendly's wants to share our growth and future with you,” says the site. Woo-hoo!
The kicker: You need a net worth of at least $1,500,000 and a minimum liquidity of $650,000. Isn’t that more than the entire chain is worth?
Five Guys’ secret sauce
While most fast-food joints are aggressively expanding their menu to include everything from tofu to tacos, Five Guys is sticking to the basics: burgers, hotdogs, sodas, and fries.
And it seems to be working. The company is growing fast and winning rave reviews.
But that hasn’t stopped eager franchisees from trying to spice up the menu with milkshakes, chicken sandwiches, and other items. So far, they haven’t had much luck.
Five Guys has a strict policy: no new menu items unless they have been personally approved by company founder Jerry Murrell, along with his wife and five sons. Each family member gets a vote. If anyone votes no, the item doesn’t make the cut.
The limited menu makes sense. It’s a way to reduce errors and keep quality high. The simple concept also makes expansion easier. But it can sometimes frustrate the heck out of franchisees and company execs.
The company’s COO once complained that he could never eat at a Five Guys when he was with his small child, because they don’t sell milk. So he asked Jerry Murrell why milk wasn’t on the menu. His response? “Kids don’t actually like milk, and kids like Five Guys because it’s a treat.”
China or bust. Yum Brands commitment to international expansion is more evident than ever. And for good reason: The owner of chains like KFC, Taco Bell, and Pizza Hut is doing far better in places like China than it is on home soil.
In fact, the biggest chunk of its operating profit now comes from China, reported The Wall Street Journal. Whereas sales in U.S. stores have fallen 3% this year, in China they have climbed 12%.
That’s probably why Yum recently decided to get rid of its restaurant chains that have no international presence—brands like A&W and Long John Silver’s. Both these domestic-focused chains are now in the process of being sold off.
More articles from AllBusiness.com:
