About 127 Pizza Hut restaurants in five states in the South and Midwest are at risk of closing permanently.
The franchisee who runs the business has put it up for sale after filing for bankruptcy in July due to mounting debts.
It all has to do with a major financial conflict between Pizza Hut’s parent company and franchisee EYM Group.
About 15 Pizza Hut locations that EYM operated in Indiana and Ohio were abruptly closed in late June as a result of the dispute. They remain closed.
EYM has now asked consultancy firm National Franchise Sales to help find a buyer for another 127 left IllinoisGeorgia, South Carolina and Wisconsin are on the verge of closing due to the dispute.
Pizza Hut abruptly closed 15 restaurants in July, leaving another 127 at risk
EYM – founded by former McDonald’s Mexico President Eduardo Diaz – filed for Chapter 11 bankruptcy protection in July.
The company 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 in turn blamed Pizza Hut for the financial problems.
The company said sales have been hit hard because the pizza chain failed to update its menus and app to keep up with rivals like Domino’s and Little Caesar’s.
Overall, Pizza Hut restaurant sales in the U.S. are down 6 percent this year compared to last year.
Pizza Hut had given EYM staggered payment deadlines in each state. The chain had warned that it would close restaurants in each state if the debts were not paid.
Indiana’s deadline was June 12. The 15 restaurants were closed two days later.
They were located in Cedar Lake, Chesterton, Crown Point, Griffith, Hammond, Hobart, LaPorte, Lowell, Merrillville, Michigan City, Munster, Portage, Schererville, Valparaiso and Winfield.
EYM, a Texas franchisee, was founded in 2008. Troubles between EYM and Pizza Hut, which has 6,700 locations in the U.S., date back to last year. The company has been operating Pizza Hut restaurants since 2015.
As part of the dispute, EYM also sued Pizza Hut. That case has now been dismissed, but court documents claimed that Pizza Hut “could not withstand the stiff competition from its competitors, [such as] Domino’s, Little Caesars.
“The best thing Pizza Hut has accomplished in recent years is replacing mozzarella with cheddar cheese and occasionally dishing up a failed appetizer like the Philly steak melt,” EYM said.
These “failed strategies” caused Pizza Hut to lose customers and fail to attract new ones.
In addition, ERM faced rising ingredient costs, which reduced profit margins.
Pizza Hut, owned by Yum Brands Inc., operates through several franchisees across the country.
Restaurants across America have been struggling this year. Faced with higher costs, they’ve raised menu prices — but that’s led to a drop in customers.
Another pizza chain with 512 locations in 28 U.S. states struggled with financial problems this year.
But in July it became clear that Mod Pizza had been saved from bankruptcy at the last minute.
Pizza Hut has also been sued by franchisee ERM, who claims the chain’s menus were no longer fresh
There had been speculation for two weeks that the chain, which has 512 stores in 28 U.S. states, would file for Chapter 11 bankruptcy.
Major chains like Applebee’s, TGI Fridays and Boston Market have all recently closed their restaurants.
Red Lobster filed for bankruptcy in May and closed nearly 100 restaurants. It has now emerged from bankruptcy.
BurgerFi became the latest to file for bankruptcy in September, sparking fears of mass closures of its 162 locations.
Chains have been hit hardest in California, where the minimum wage for fast-food restaurants increased to $20 an hour effective April 1.
In early June, Mexican chain Rubio’s closed 48 locations in the state and also filed for bankruptcy.
Small family businesses have also closed in America.
For example, Fargo’s Pit BBQ in Texas has closed after serving brisket, ribs and other barbecue classics for more than two decades.