The franchisee of Freddy’s Frozen Custard & Steakburgers has filed for bankruptcy in Kansas after closing 11 Chicago-area stores starting in 2024.
M&M Custard filed for Chapter 11 protection on Nov. 14, and in an affidavit, M&M Custard co-founder and CEO Eric Cole said the reorganization of the franchisee will be successful as unprofitable stores are removed from the company’s holdings.
The franchisee reported assets of $5.2 million and debts of $27.65 million, according to court records. The company has more than 100 creditors.
M&M Custard opened its first Freddy’s franchise in 2012 in Jefferson City, Missouri, and expanded to 42 franchises before closing in Chicago. In a Nov. 19 email to USA TODAY, Cole confirmed that the company will continue to open its remaining 31 stores across six states.
Here’s what you need to know about M&M Custard’s bankruptcy.
Freddy’s franchisee withdraws from Chicago market
M&M Custard acquired three Chicago-area stores in 2021 after being approached by Freddy’s to expand its market, according to Cole’s affidavit. By March 2024, the franchisee had 11 stores in the market.
Cole said in an affidavit that the franchisees have evolved into two “fundamentally different businesses” and that the Chicago store has become a “financial drag” on the company, while the 31 “traditional stores” remain profitable.
“Continued negative EBITDA, limited buyer appetite for underperforming assets, and Illinois’ increasingly burdensome regulatory and tax environment combined to undermine the long-term viability of the market,” Cole said.
Stores will begin closing in March 2024, with the last store closing in October 2025.
Freddy’s: Franchise store bankruptcy is ‘isolated situation’
In a statement to USA TODAY, Freddy’s called the bankruptcy an “unfortunate and isolated situation,” adding that the restaurant is working to ensure “little interruption” during the bankruptcy process.
“It is important to note that this filing applies only to this specific group of franchisees and does not reflect the corporate stability of Freddy’s or the performance of other franchisees,” the statement reads.
Nation’s Restaurant News, a restaurant industry magazine, reported that Freddy’s sales in 2024 were up 6.8% from the previous year, outperforming its hamburger chain peers.
