Some 127 Pizza Hut restaurants in five states in the South and Midwest are at risk of closing permanently.
The franchisee who runs them has put them up for sale after declaring bankruptcy in July due to mounting debts.
It all stems from a major financial dispute between Pizza Hut’s parent company and its franchisee EYM Group.
In late June, as a result of the dispute, about 15 Pizza Hut locations owned by EYM in Indiana and Ohio were abruptly closed. They remain closed.
EYM has now asked advisory firm National Franchise Sales to help it find a buyer for 127 more across the country IllinoisGeorgia, South Carolina and Wisconsin are on the brink of closure as part of the dispute.
Pizza Hut abruptly closed 15 restaurants in July. Another 127 are at risk
EYM – founded by ex-McDonald’s Mexico President Eduardo Díaz filed for Chapter 11 bankruptcy in July.
He owes Pizza Hut $2.25 million and another $21 million to Manufacturers Bank.
EYM is being sued by the chain over millions of dollars in unpaid bills.
EYM has, in turn, blamed Pizza Hut for its financial problems.
The pizza chain says its sales have been severely affected because it has failed to modernize its menus and app to keep up with rivals such as Domino’s and Little Caesar’s.
Overall, Pizza Hut’s U.S. restaurant sales are down 6 percent this year compared with last year.
Pizza Hut had set staggered payment terms for EYM in each state. The chain had warned that it would close restaurants in each of them if the debts were not paid.
Indiana’s deadline was June 12. All 15 restaurants were closed two days later.
They were in Cedar Lake, Chesterton, Crown Point, Griffith, Hammond, Hobart, LaPorte, Lowell, Merrillville, Michigan City, Munster, Portage, Schererville, Valparaiso and Winfield.
EYM, a Texas-based franchisee, was founded in 2008. The problems between it and Pizza Hut, which has 6,700 locations across the United States, date back to last year. It has operated Pizza Hut restaurants since 2015.
As part of the dispute, EYM also sued Pizza Hut. That case has now been dismissed, but court documents He said Pizza Hut had “failed to keep up with tough competition from its competitors, such as Dominos and Little Caesars.”
“In recent years, the best thing Pizza Hut has done is change the cheese on its stuffed crust from mozzarella to cheddar, or occasionally offer an unfortunate appetizer like the Philly steak melt,” EYM added.
These “failed strategies” caused Pizza Hut to lose customers and not attract new ones.
On top of this, ERM suffered as rising ingredient costs eroded profit margins.
Pizza Hut, owned by Yum Brands Inc., operates through several franchises across the country.
Across the United States, restaurants have been struggling more and more this year. Faced with rising costs, they have raised menu prices, but that has led to a drop in customers.
Another pizza chain with 512 locations in 28 US states has struggled financially this year.
But in July it emerged that Mod Pizza had been saved from bankruptcy at the last minute.
Pizza Hut has also been sued by franchisee ERM, which says the chain’s menus have become outdated.
It had been two weeks since speculation began that the chain, with 512 locations in 28 US states, would file for Chapter 11 bankruptcy.
Major chains like Applebee’s, TGI Fridays and Boston Market have all closed restaurants recently.
Red Lobster filed for bankruptcy in May and closed nearly 100 restaurants. It has now emerged from bankruptcy.
BurgerFi is the latest company to file for bankruptcy in September, sparking fears of mass closures of its 162 locations.
Chains have been hardest hit in California, where the minimum wage for fast-food restaurants rose to $20 an hour starting April 1.
In early June, Mexican chain Rubio’s closed 48 branches in the state and also filed for bankruptcy.
Across the United States, family-owned businesses have also been closing.
For example, Fargo’s Pit BBQ in Texas closed after more than two decades of serving brisket, ribs and other barbecue classics.