The largest franchisee in the US filed for bankruptcy.
On Wednesday, NPC International — a company that owns and operates more than 1,200 Pizza Hut and close to 400 Wendy’s locations — filed for Chapter 11 protection in the Texas Southern Bankruptcy Court.
NPC has struggled financially in recent years, in large part because of the performance of its 1,227 Pizza Hut locations which make up roughly 20% of all of the chain’s US locations, according to the company’s filing. Pizza Hut has struggled to grow same-store sales across the system, as rivals such as Domino’s and Papa John’s have thrived.
“Deteriorating brand recognition has been further exacerbated by decreased menu innovation and the lack of a clear, long-term strategy by the Pizza Hut Franchisor to address the brand issues to provide a clear and differentiated identity,” the filing reads.
The coronavirus pandemic “unexpectedly provided some relief” for NPC, as Wendy’s offered franchisees concessions and Pizza Hut saw sales grow as customers ordered more delivery.
However, new safety measures have been expensive, costing the company roughly $750,000 per month. NPC said in the filing that Pizza Hut sales are once again declining and that the pandemic has contributed to longer-term issues, such as rising labor costs and the availability of ingredients, including fresh beef.
The bankruptcy filing does not mean that NPC will close Pizza Hut or Wendy’s locations. Instead, NPC is attempting to reduce debts, including plans to sell some of its restaurants.
Pizza Hut said in a statement that NPC’s filing was “expected,” and that the chain views it as “an opportunity to create a better future for NPC’s Pizza Hut restaurants.”
“As NPC works through this process, we support an outcome resulting in an organization with a lower, more sustainable level of debt, ownership focus on operational excellence and a greater level of restaurant investment,” the statement reads. “These changes will help NPC’s Pizza Hut restaurants generate the same momentum we are seeing throughout the Pizza Hut US business and strengthen the overall health and performance of the entire system for the long term.”
While chains have been better positioned during the coronavirus pandemic than independent restaurants, they have also been hit hard as people radically change their eating habits.
Chains including Starbucks, IHOP, and Denny’s have announced plans to close more than 900 locations due to the pandemic, Business Insider’s Irene Jiang reports. Numerous individual franchisees have filed for bankruptcy, as restaurants’ sales plummet.
“Every franchisee is a small business, and they had to close up, and they’re sucking wind,” restaurant industry investor Roger Lipton told Business Insider in May. “They’re hemorrhaging.”
This story originally appeared on Business Insider.