America’s fast-food industry recently saw a franchisee operating a beloved franchise file for Chapter 11 bankruptcy protection. Many fast-food chains are struggling with increasing costs, labor shortages, and aggressive rivals.
Even brands cemented in Americana face pressures in the current economic climate, as consumers shift their habits and spend less. It may not look like it from the outside, but the fast-food sector is under a lot of strain.
A Silent Crisis
The Chapter 11 bankruptcy protection follows an economic decline despite the franchisee operating America’s most popular restaurant franchise.
This is all part of a larger silent crisis where many fast-food chains cannot keep up with inflation, supply chain shortages, and increased borrowing costs. Consumers should expect to see this trend echo through the fast food landscape.
Subway
Subway is the most popular fast-food franchise in America, with the giant first opening its doors in 1965. Aggressive expansion meant that by June this year, over 20,000 stores were open nationwide. However, despite this huge presence, the franchise has faced closures for the last eight years, with more than 400 happening in 2023.
Now, a franchisee of Subway, California-based CGA Corporation, has filed for Subchapter V petition under Chapter 11 in the U.S. Bankruptcy Court.
What Happened?
While no official court filings have been disclosed yet, industry experts suggest there could be a few reasons why the CGA Corporation had to file for bankruptcy protection.
Like many businesses, changing consumer habits and emerging rivals drove profits down as consumer traffic severely declined. CGA Corporation’s struggles give us a window into the harsh environment for Subway operators.
Financial Losses
CGA Corporation’s bankruptcy protection reports assets between $50,000 and $100,000, while the franchisee reports liabilities anywhere from $100,000 to $500,000.
Many franchisees carry the burden of debt from creditors to keep operating, and the largest creditor for CGA Corporation is the Small Business Administration, where a partial loan of $249,000 was secured. However, there are other creditors across financing companies.
Impact On Employees
CGA Corporation operated Subway locations mostly in Montebello, California, where the company is based. While no immediate reports of these franchisee-operated Subways closing have come to light, the struggles of the franchise and the fast food industry as a whole have led to hundreds of Subway closures in recent years.
Employees who work at Subways operated by CGA Corporation might feel that their job security is uncertain as the company now has to restructure its debt, which could involve closing certain locations if necessary.
What’s The Next Move?
After filing for a Subchapter V petition, CGA Corporation’s next move will be under court supervision, as the company navigates its debts. In the meantime, the company remains free to keep operating Subways fully functional.
Many creditors are owed money and the company will have to submit a detailed plan on how it will repay them, which typically happens over a three to five year period.
Part Of A Larger Trend
The CGA Corporation is just the latest of many companies involved in fast food that have had to file for bankruptcy or bankruptcy protection, and it is a growing trend. For many fast food chains, Margins are lowering more than ever before as wages need to increase, food costs go up, and interest rates skyrocket.
Restaurant chains that were once well-established have faced similar challenges, including Burger Holdings – a Burger King franchisee, TGI Fridays, Rubio’s Coastal Grill, and Buca di Beppo. All of these fast-food chains filed for bankruptcy in 2024.
What Consumers Should Expect
Amid the Subchapter V petition of CGA Corporation, consumers shouldn’t dismay just yet. For customers at CGA Corporation franchised Subways in California, there shouldn’t be any immediate effects.
Any gift cards or loyalty programs should also remain unaffected by the filing. But as CGA Corporation restructures the business in order to find out how to repay creditors, some underperforming locations could be closed.
The Future Of CGA Corporation
How CGA Corporation and its Subway locations change in the future depends on how the Subchapter V petition process is handled. Debt needs to be restructured, operations need to be improved, and the franchisee needs to find a competitive edge in the consumer market.
The outlook is positive overall, but with rising labor costs and more competition rising in the region, CGA Corporation’s ability to adapt will determine whether it can keep its Subway franchise operation in Montebello and surrounding locations.