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Bankruptcy

| Mar 19, 2014 | Bankruptcy

New York-based, Sbarro, has filed for Chapter 11 bankruptcy for the second time in three years. The pizza chain has struggled with debt and competition in the marketplace.

In the Chapter 11 reorganization plan, Sbarro hopes to cut down its debt by over 80 percent. Sbarro also plans to close approximately 50 locations, on top of the 180 money-losing operations they have already shut down.

Although the bankruptcy will not affect the franchise owned 582 restaurants, Sbarro as a company has 799 restaurants and employs over 2,700 people.

Sbarro has seen a drop off in mall traffic, where many of their restaurants are located. Their business model has also been called into question.

A restaurant consultant said, “Sbarro has been struck with an outdated business model…Its biggest shortcoming is that is sells food that has been sitting out for a while, and more people want food made to order.”

In a statement Monday the chain said the bankruptcy filing is a pre-packaged plan, which means that it has already agreed on a reorganization plan with creditors that hold 98% of the company’s debt. That should allow it to quickly shed an estimated $140 million in debt, and emerge from bankruptcy as a healthier company.

It is the second bankruptcy filing in less than three years by the chain, which previously filed for bankruptcy in April 2011.

In February, the company announced it was closing 155 company-owned restaurants in the United States, effective immediately. That left it with 220 U.S. locations and more than 600 other locations owned by franchise operators in 40 different countries.

The closings left the company with about 2,700 employees. Spokesman Jonathan Dedmon said that no further restaurant closings are envisioned under the bankruptcy plan. He said Sbarro has already closed its weaker locations and expects to shed 80% of its debt during the bankruptcy. It has also secured $20 million in new financing.

“The previous closures and bankruptcy filing are part of an overall plan to invest in and grow the company for the future,” he said.

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