Ramifications of Round Table Pizza’s filed Bankruptcy, What to expect based on lessons learned from past franchisors who filed for Bankruptcy

You may have heard that Round Table Pizza, the Franchisor, has recently filed for bankruptcy.  What does this mean for the brand, franchisees and it’s customers?  In looking back at past situations that share similaraties, it is not all dire news.  Two such examples are Schlotzsky’s in 2004 and Togo’s from around the same time.

Round Table Pizza

Schlotzsky’s was a publicly listed company when it filed for bankruptcy in August of 2004.  After changing hands a couple of times, the company is now owned privately.  Long story short, Schlotzsky’s now seems to be back on its feet and doing well again.

Togo’s is a long established brand from the late 1906s and early 1970s that struggled when it became the forgotten stepchild in Allied Domecq’s portfolio for most of the early part of the 2000s.  Togo’s is in better shape now than it was in the early part of the decade, as it’s current corporate parent devotes more attention to the brand.

So how does this apply to Round Table Pizza?  Let’s identify the obvious trouble spots.   Some corporate locations are going to be closing.  This will affect consumer confidence in the overall brand, which potentially will translate into fewer customer visits and orders, which translates to reduced profits and reduced store valuations.  It also raises red flags for landlords, when it comes to leasing to new franchisees of Round Table Pizza, and for existing franchisees trying to extend, renew or renegotiate leases.

Schlotzsky’s is based in Austin, TX, so the news in Southern California was not a big deal, nor was it at a time when the economy was struggling.  We had listed a Schlotzsky’s for sale in Orange County around the same time frame, and noticed that the vast majority of customers were unaware of the bankruptcy and thus it did not affect their desire to eat Schlotzsky’s.  In this market, given the storyline of economic struggle, it seems that consumer awareness of the bankruptcy filing of Round Table Pizza might be slightly higher, but overall not significant.  Our guess is, that the closing of locations will be what most affects the local customer perception of the brand.

Bottom line, if you are an existing franchisee, or looking to buy a Round Table Pizza, be aware that the brand’s esteem and perception will take a hit as the news spreads and the corporate stores are closed.  Also, keep in mind that landlords of these corporate stores will be unhappy that the Franchisor closed stores on them, so do your homework with your landlord.

How else will this affect Round Table Pizza.  Well, Togo’s is a great example to point to.   As the Corporate owner of Togo’s was under going mergers and acquisitions, from 2004 through 2006, product development and marketing efforts stalled.  This was bad for the franchisees and customers as the attention from the Franchisor was elsewhere.  Round Table Pizza Franchisees will have to put up with a corporate parent that is busy dealing with Lawyers, Creditors, Arbitrators, Mediators, Judges etc.  If there are any marketing or product innovations happening in the industry while the bankruptcy is pending, it could leave Round Table Pizza and its franchisees behind the curve.  Employee turnover at the Franchisor could also affect the overall quality of the operations.

Again, both Togo’s and Schlotzsky’s are on their feet again in different with franchisees operating stores.  Not all franchisors that filed for bankruptcy though were able to turn it around and survive.  It will remain to be seen what happens to Round Table Pizza, in our opinion it seems like the Brand will survive.

For More information on how Just Elementary, Inc can help you with evaluating franchises email cs@justelementary.com or call (323) 213-9193