88-Year-Old Krystal Files for Bankruptcy Protection
The 88-year-old Krystal company has filed for bankruptcy protection in an attempt to hit the reset button and get back to its path toward growth. In a statement, President Tim Ward said the company would be back on track as quickly as possible.
“The actions we are taking today will enable Krystal to establish a stronger business for the future,” said Ward. “We look forward to emerging from this process as quickly and efficiently as possible.”
The company, which mostly operates in the Southeast, has been struggling for new sales and unit expansion for years. Argonne Capital has owned the company since 2012, and since then it’s gone through many big changes, including moving the headquarters to Atlanta, a major refranchising push, a move to 24-hour operations and a handful of changes to top management.
Most recently, Paul Macaluso left as CEO to join Another Broken Egg Café, and the company brought in Ward and CFO Bruce Vermilyea. Both Macaluso and former CFO Berry Epley left to “pursue other opportunities.” So far, the CEO position has not been filled.
At the end of 2018, according to the Franchsies Times Top 200, the company had 356 restaurants and $377 million in sales. That represented a slowdown of 4.3 percent year-over-year. Now, the company has about 320 locations—about 200 company-owned locations and the rest franchised.
Recently, the company announced some new prototypes were working well, and it had signed a new three-store development agreement. But as the bankruptcy protection filing shows, it wasn’t enough to make ends meet. While the updated stores saw a reported 30-plus percent increase in sustained sales, they also ran about $950,000 to open. That likely changed the calculus for potential buyers in a refranchising push announced late last year.
According to the company, there was a laundry list of reasons it opted for bankruptcy protection, including new competition, third-party delivery (a hot scapegoat for brand issues lately) and lagging traffic.
In all, the company owes more than $50 million to various creditors and reports under $50 million in assets. The largest creditors are marketing agency Tombras Group, to which the company owes $4.22 million; US Foods, which is owed $2.87 million; and POS provider Radiant Systems, which is owed $560,053. Waste management, a legal office and an insurance provider make up the next largest of the top 30 creditors.
If anything, the news should be a cautionary tale about what happens when a concept doesn’t keep up with its peers. Ward said many locations “haven’t been touched in 30 years.” In the era of new-concept explosion, low-credit funded updates and radically changing consumer demands, that’s just not enough.