Pizza Hut’s largest American franchisee files for bankruptcy due to coronavirus

07/07/2020 / By Franz Walker

NPC International Inc., the largest franchisee of Pizza Hut stores in the U.S., has filed for bankruptcy in the aftermath of shutdowns due to the Wuhan coronavirus.

According to court papers, the company, which operates 1,227 Pizza Hut and 393 Wendy’s stores across the U.S., sought Chapter 11 protection in the Southern District of Texas court on July 2.

Company already in trouble before the pandemic

Prior to the coronavirus outbreak, NPC International was already facing financial issues. The company missed interest payments for its nearly $800 million in loans on January 31 of this year, prompting S&P Global Ratings and Moody’s Investors Service to lower their views on the company’s debt. At the time, NPC was already in conversations with its lenders for a possible bankruptcy filing, according to people familiar with the company’s finances.

The ongoing coronavirus pandemic has since made NPC International’s situation worse. In the wake of forced shutdowns due to the pandemic, the company has struggled with growing costs for food and labor. As such, the company now has nearly $1 billion in debt.

In a statement, Pizza Hut noted that NPC International filing for bankruptcy “was expected” and said that the move would help restructure their “entire system for the long term.”

“As NPC works through this process, we support an outcome resulting in an organization with a lower, more sustainable level of debt, ownership focus on operational experience and a greater level of restaurant investment,” the company stated.

Other franchised restaurant operators in trouble

NPC International is just the latest franchised restaurant operator to file for bankruptcy following shutdowns to stem the spread of the coronavirus. Franchise chains largely depend on customers coming into their dining rooms to make money. As such, the mandated restaurant closures have caused the sales of many franchised chains to plunge, bringing many of them to the brink of collapse.

Le Pain Quotidien’s U.S. division filed for bankruptcy last May. The chain, which struggled in recent years due to increased competition from other chains such as Pret a Manger and Dig, sold all 98 of its U.S. locations for just $3 million to New York-based food branch Aurify, operator of other fast-casual restaurants such as the Melt Shop, Fields Good Chicken as well as the New York City locations of Five Guys.

CEC Entertainment, the parent company of restaurant and amusement center chain Chuck E. Cheese, filed for Chapter 11 bankruptcy on June 24. The company hopes to use the Chapter 11 process to cut debt, negotiate concessions with landlords, and make business more sustainable.

In a recent statement, CEC Entertainment CEO David McKillips called the pandemic “the most challenging event in our company’s history.” He said the company hopes to “get back to the business of delivering memories, entertainment and pizzas for another 40 years and beyond.”

As its franchisee flounders, Pizza Hut thrives

Even as NPC International, as well as other franchised chains, struggle to make money in the face of coronavirus restrictions, Pizza Hut has done quite well for itself. The shift from dine in to delivery and takeout to eat safely – something which pizza chains already have a head start with – saw pizza chains in an advantageous position.

According to Pizza Hut parent company Yum Brands Inc., the pizza chain saw its highest average sales in delivery and carry out in the U.S. in the past eight years in May.

In March, when most restaurant chains were announcing major layoffs and furloughs, Pizza Hut, as well as rival chains Papa Johns and Dominos, announced plans to hire more workers. Of the three, Pizza Hut was the most aggressive in hiring new workers, adding around 30,000 new permanent positions.

That said, NPC International’s bankruptcy filing shows that pizza chains still face challenges from the current pandemic. Even if their lead in the delivery business helped slow the economic effects of shutdown orders, it still wasn’t enough to save those already facing debt.

Sources include:

Tagged Under: bankruptcy, business, Chapter 11, Collapse, coronavirus, covid-19, disease, fast food, finance, Flu, franchise, pandemic, pizza hut, risk, Wendys