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Dive Brief:
True Food Kitchen filed for Chapter 11 bankruptcy protections in the U.S. Bankruptcy Court for the Southern District of Texas on Sunday, according to a press release.
As part of restructuring, the chain closed 12 restaurants on Sunday, but its remaining 34 locations across 14 states remain in operation. True Food Kitchen will pursue a court-supervised sale and will identify a long-term partner with the resources and alignment to support the chain’s future, according to the press release.
True Food Kitchen, a wellness-driven casual chain, said it will use the restructuring process to improve its financial foundation, restaurant footprint and cost structure as well as accelerate current operational improvements.
Dive Insight:
True Food Kitchen’s financial distress has been building since the COVID-19 pandemic, which impacted profitability during a time when the company was growing, Nathan Cook, chief restructuring officer, said during a first-day motion.
During the pandemic, True Food Kitchen used some locations as ghost kitchens and opened an off-site kitchen for delivery-only orders. However, these tests impacted staffing and the restaurant service experience. Those sites have since been terminated as the chain refocused on the core dining experience, Cook said.
True Food’s dine-in restaurants have also struggled, including some in areas with lower-than-anticipated foot and car traffic. Other units were impacted by changing market conditions and demographics that led to profitability declines over time, Cook wrote.
On top of economic conditions, True Food Kitchen underwent significant management turnover, leading to changes in its growth and brand strategies and menu offerings, Cook said.
Some of those strategies didn’t pan out. The chain invested beyond its core market areas and in new product lines and restaurant concepts that were “unsuccessful and outside the Company’s core mission and menu,” Cook said. The company also used these capital investments to buy equipment to sell new product lines in restaurants that “were not well aligned with the Company’s health-focused brand identity,” Cook said.
Prior to declaring bankruptcy, the chain attempted to turn its business around. It hired Jeff Chandler as CEO in July, retained Gordon Brothers to help review the chain’s real estate portfolio and retained Teneo, where Cook works, as financial advisor to evaluate the company’s business and liquidity profile and develop strategic alternatives. Other cutbacks included reducing its corporate workforce, renegotiating vendor contracts and limited expenses and exploring assignment transactions for all of the company’s unexpired leases, among other elements.
The company said it secured $20 million in debtor-in-possession financing from HumanCo TFK IV, subject to court approval. Alongside cash from operations, the company expects to have enough funding to provide liquidity to sustain the business through Chapter 11 and a sale.
True Food Kitchen was originally established in 2008 and was part of the Sam Fox restaurant group, Cook said. The company grew to 20 units, and in 2017, the chain was spun off as FRC Balance. In 2018, it received an equity investment from Oprah Winfrey, who joined the brand’s board of directors. At the time, the chain was focused on growth across the East Coast. After the spinoff, the chain expanded over the next few years, reaching its peak of 46 units.
A handful of other once fast-growing chains have also declared bankruptcy this year. Salad and Go closed 70 stores and declared bankruptcy over the summer, with 7 Brew snatching up about 63 of its stores for $123 million. On the Border filed for Ch. 7 liquidation, less than two years after it declared Ch. 11 bankruptcy and was sold to Pappas Restaurants. Fat Brands also declared bankruptcy in January and was split up by multiple buyers. Fat Brands, under owner FBG Bid Co., has since renamed itself as OHG (Original. Honest. Good) with about a dozen brands under its portfolio.
Dining and Cooking