One of the largest restaurant franchisees in the U.S. is expected to file for bankruptcy, according to Fox News. NPC International, which owns over 1,200 of Yum Brands (NYSE:YUM) Pizza Hut restaurants and nearly 400 for Wendy's (NASDAQ:WEN), may file for Chapter 11 protection as early as today.
The franchisee has struggled for years as Yum! Brands found that turning around the pizzeria chain was a more intractable problem than it originally believed. Meanwhile, Wendy's fought to maintain the pace of growth alongside McDonald's and Restaurant Brands International's (NYSE:QSR) Burger King.
Bankruptcy already on the menu
NPC International defaulted on the financial covenants in its lending agreement last year and missed interest payments on nearly $800 million in loans back in January. The franchisee, which has $1 billion in debt, began considering filing for bankruptcy back then as declining sales and rising labor costs have pressured restaurants across the country.
While the coronavirus pandemic has led to several restaurant chains filing for bankruptcy, including the kids' food and entertainment chain Chuck E. Cheese, the restrictions imposed on restaurants to offer only takeout and delivery ought to have helped bolster NPC's chances for survival.
Where Yum! Brands acknowledged the franchisee's troubles would lead to "choppiness" in the performance of the Pizza Hut segment this year, the chain has been transforming itself over the past three years in an attempt to lure consumers back in, improving its menu and efficiency. More recently, it has been transitioning its sit-down restaurants into smaller carryout and delivery locations. Wendy's has also invested in its drive-thru technology.
That apparently hasn't been enough to overcome the severe impact of the COVID-19 pandemic, and although NPC's private-equity owner Eldridge Industries promised support as needed through its recovery, that may now be at an end.