Burger King Embroiled In Battle With Bankrupt Franchisee Over Selling Restaurants

International fast food chain Burger King depends on its network of private franchisees to oversee restaurants across the globe, but in recent months the company has faced headaches from a few of its U.S.-based operators. In 2023, alone TOMS Kings Holdings and Meridian Restaurants Unlimited, two of Burger King's major American franchisees filed for bankruptcy. Another, the Texas-based EYM King of Michigan, avoided filing Chapter 11 by preemptively shuttering all 26 of its locations in the state of Michigan.

But that was just the start of Burger King's troubles. The company is currently locked in a legal battle with one of the bankrupt franchisees, Meridian Restaurants, which operated 116 outposts across Western states including Utah, Wyoming, Montana, Arizona, Nebraska, and Minnesota. Since filing for bankruptcy protection in March, in an attempt to reorganize and maintain ownership of its holdings, the Meridian group closed over 20 restaurants. Now, parent chain Burger King has turned to a federal bankruptcy court to make the franchisee to the 93 units it has left.

This week, the company joined a filing alongside various creditors and vendors, to force a sale of the franchisee's remaining units. According to Restaurant Business Online, Burger King called Meridian's reorganization path "ill-fated," and noted it would not move forward with a process that sees Meridian maintain ownership of the properties. The company's aim is to recoup an amount of $3.95 million in unpaid royalties and ad fees, although its goal is to keep the Burger King franchises.

This most recent legal battle comes in the midst of the company's overall restructuring strategy when it comes to franchise expansion. In May, Burger King announced a new policy that would limit the number of units small franchisees can operate to 50. Josh Kobza, CEO of Burger King parent Restaurant Brands International, added that there would be an emphasis on franchise portfolios that are consolidated in "contiguous" geographic areas in order to maintain small local ownership, per Nation's Restaurant News. In keeping with the policy, Burger King's filing with Meridian group involves breaking up and packaging its remaining holdings to be sold by the state, rather than risk another unsuccessful franchisee operating across too large an area.

Meanwhile, back in January, Burger King began rolling out a $400 million plan to revive slumping sales. The pricey strategy will see the company invest more money into remodeling restaurant locations, installing upgraded tech, and increasing advertising budgets. As CNBC reported at the time, the plan would also involve menu updates, including the development of new Whopper flavors and other offerings.

Considering the slew of closures and bankruptcy battles Burger King has faced in 2023, the company is betting on its new strategies to have a profitable impact over the next few years.