Wendy's Franchisee Files Bankruptcy

Meritage Hospitality Group, a major Wendy's franchisee, has filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Western District of Michigan. The company operates 314 Wendy's locations, roughly 5% of the chain's U.S. system, as well as one Bojangles and five independently branded concepts across 15 states.

The bankruptcy filing comes after Meritage conducted a thorough assessment of its financial position, which has been impacted by challenges facing the Wendy's system over the past few years. Wendy's has faced double-digit same-store sales declines over the past few quarters, and Meritage has not been immune to these struggles.

Meritage has taken steps to restructure and cut costs, including cutting over $7 million from its general and administrative and operational expenses related to internal restructuring. The company has also closed 60 underperforming stores, which, along with alterations to breakfast offerings in 120 locations, led to an immediate EBITDA margin benefit of over $11 million.

In addition to these cost-cutting measures, Meritage has also been exploring new revenue streams. In March, the company rolled out a catering test with EzCater at 150 restaurants, followed by a full rollout in May. The average check for the catering test has been around $500.

## Why it matters The bankruptcy filing by Meritage Hospitality Group is significant, as it is one of the largest Wendy's franchisees to declare bankruptcy since NPC International did so in 2020. The macroeconomic dynamics are different this time around, with many restaurant consumers pulling back on spending due to ongoing inflation. Beef inflation, deep discounting, and marketing misses have all contributed to franchise store-level margins hitting a 30-year low at Meritage.

Despite the challenges, Meritage plans to maintain restaurant-level operations and pay its roughly 9,000 team members' wages and benefits without disruption during the Chapter 11 process. The company's ability to navigate these challenges will be closely watched, as it seeks to restructure and emerge from bankruptcy.