Why Are So Many Franchisees Filing Chapter 11?
Over the past three years, something has been happening in franchising that we can’t ignore anymore.
Chapter 11 filings are stacking up.
This month alone, a 65-unit Carl’s Jr. franchisee and a 53-unit Applebee’s franchisee filed for bankruptcy. Before that, multiple Burger King operators entered Chapter 11, along with Popeyes mega-franchisee Sailormen, Inc. and a Subway operator. Even emerging brands like Pieology have filed, while legacy systems such as Wendy’s, Pizza Hut, Papa Johns, and Jack in the Box have announced plans to close hundreds of locations.
At first glance, these look like isolated situations, but they are not. They are signals pointing to macro issues that are affecting the environment where these businesses operate. If something doesn’t change, more of these stories are likely to surface. So, let’s break this down and answer three critical questions:
1. Is This More Than Normal?
In a word — “Yes!”
Over the past three years, we’ve seen a steady drumbeat of multi-unit operators, in different brands, entering Chapter 11. These are not mom-and-pop franchisees, but sophisticated, scaled operators running dozens or even hundreds of locations. These are operators who have been in business not for a few years but decades. Sailorman, for example, had been a Popeye’s franchisee for over 40 years. After that much time in business you would expect these operators to have established teams and systems in place, along with balance sheets that were light on debt and heavy on cash. They didn’t.
- In 2023 alone, multiple large franchisees filed, impacting hundreds of units across systems like Burger King.
- In 2024, hundreds of full-service restaurant locations were closed as part of bankruptcy proceedings.
- In 2025, more than 20 restaurant chains or large franchise groups sought protection.
In 2026, we’re picking up right where we left off with the filings for Carl’s Jr. and Applebee’s. Another concerning data point: Epic news reports that Broader commercial Chapter 11 activity is up as well. The independent news outlet reported that January 2026 commercial Chapter 11 filings rose 76% year over year.
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2. Why Is This Happening?
There’s no single cause for these chapter 11 filings. What we are seeing is that the business models, that once worked brilliantly for operators, are being hit simultaneously by multiple pressure points. The effect of these pressure points compound upon each other leading to catastrophic failure for the operator. Let’s break down what’s happening:
Margins Are Getting Crushed
Labor is up. Food costs are up. Insurance is up. Rent is up.
But traffic? Flat at best — and in many cases, declining. This is a recipe for disaster.
Even upstream suppliers are feeling it. Lamb Weston — one of the largest potato suppliers in the world — has been openly signaling weak restaurant demand and declining traffic trends. When the French fry supplier is struggling, you know you got a problem!
Consumers Are Tapping Out
The customer is fatigued. Prices have gone up across the board, and now the consumer is pushing back:
- Fewer visits
- Lower ticket sizes
- More selective spending
This showed up clearly in the Applebee’s filing — declining traffic and shrinking check sizes, even before the balance sheet broke. Consumers are being very vocal about the fact that fast food, once the go to for good cheap meals, is no longer an inexpensive option.
Bad Capital Structures Are Getting Exposed
A lot of these operators were built during a very different era:
- Cheap debt
- Easy refinancing
- Aggressive growth assumptions
That world is gone. Now you’re seeing the consequences:
- Merchant cash advances tied to revenue
- Overleveraged balance sheets
- Debt service that no longer matches reality
Layer that on top of other challenges like difficulty in hiring good staff, when sales soften, there’s no room to breathe.
Overexpansion Is Coming Home to Roost
Franchising, over the past decade, has become a growth machine. New units. More territories. Faster development schedules. But not all growth is good growth.
Many operators are now stuck with:
- Underperforming locations
- Long-term lease obligations
- Personal guarantees on bad sites
When one or two stores struggle, you can manage it. But what happens when you have 10, 20, or 30 stores struggling at the same time? This had a huge impact on Sailorman who had to close stores due to staffing issues but then continued to be responsible for debt service and rent on those units. That’s how you end up in Chapter 11.
The Model Itself Is Being Stress-Tested
Here’s the uncomfortable truth — The franchise model depends on a balance:
- Franchisors drive growth and collect fees
- Franchisees operate the business and take the risk
When margins compress, that balance breaks.
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Operators are carrying:
- Royalties
- Marketing fees
- Buildout costs
- Labor risk
- Lease obligations
If the unit economics don’t work, the model doesn’t work. And right now, in many systems, the unit economics are under real pressure. Even McDonald’s franchisees are reporting struggling despite having an average annual unit sales volume of over $4 million.
3. What Has to Happen for This to Stop?
For this to get back to normal something is going to have to give because this won’t fix itself. There are four critical changes that need to happen
First — Costs Have to Normalize — or Operators Have to Reprice Aggressively
Either inflation cools meaningfully, or brands and operators must continue pushing price.
The problem is obvious: there’s a ceiling on what the consumer will tolerate.
Second — Weak Units Need to Be Cut — Fast
Too many operators are holding onto bad stores for too long. The winners in this cycle will be the operators who:
- Close underperforming locations early
- Renegotiate leases aggressively
- Focus capital on their best assets
This is a portfolio management game now — not a growth game.
Third — Capital Structures Need to Reset
The era of easy money is over. Operators need to clean up their balance sheets:
- Less leverage
- Smarter financing
- Real equity in the deal
And lenders are going to be far more disciplined going forward.
Fourth — Franchisors Need to Step Up
This is the big one, and I think it will be the determining factor on who wins or loses. Franchisors can’t just be stewards of the brand anymore, they need to intervene and prop up large franchisees that are teetering on the edge of bankruptcy otherwise it could be the death spiral for the brand. They need to:
- Protect unit-level economics
- Take over the ownership and management of large, troubled operators like Burger King did with Carroll’s
- Support operators with real operational discipline
Because if the franchisee fails, the system fails.
The Bottom Line
What we’re seeing right now is not a random bunch of companies suddenly failing but rather a system reset. It has been a long time coming. For the past decade, franchising was fueled by:
- Cheap capital
- The introduction of private equity
- Aggressive expansion
- Optimistic assumptions
Now the environment has changed, and the operators who were built for the old world are struggling to survive in the new one. Some will adapt, restructure and consolidate while others will disappear entirely.
But one thing is certain: The next generation of franchise operators will be built differently. They will have more discipline on 4-wall profitability, they will be better capitalized, and far more focused on unit economics than unit count.
Playbook Takeaway
If you’re a franchisee, this is the moment to get brutally honest about your business.
Know your numbers. Fix what’s fixable. Cut what isn’t.
Because in this environment survival is the ultimate strategy.
