After failing to comply with its franchise agreement, one of Perkins’ largest operators could be forced to close 26 locations.
Perkins is suing Campbell Land Co., which operates Perkins locations in Ohio (10), Pennsylvania (15), and New York (one), to shutter those stores after not paying royalties and making upgrades. In early June, the company terminated the agreement with Campbell, citing the past-due royalties, meaning all their locations would need to drop the Perkins name and close. They also couldn’t reopen under a different name within 3 miles of current units for at least two years. Campbell has continued to run the restaurants, however, leading Perkins to take the company to court and sue for removal.
The Memphis-based company said Campbell failed to “uphold the standards set forth in the license agreements,” according to court documents. In May, one of the stores, located in Grove City, Pennsylvania, closed over health code violations. Legal documents also said Campbell served products unapproved by Perkins, such as pork chops.
Now a federal court will determine whether the franchise locations will shut their doors permanently.
READ MORE: Perkins & Marie Callender’s Considering Bankruptcy, Report Says
“5171 Campbells Land Company has been in default since April 2018 failing to pay agreed upon royalty fees, marketing contributions, and transfer fees,” the company said in a statement. “Despite innumerable attempts to resolve the situation with the franchisee, and Campbells Land Company’s repeated failure to comply, Perkins & Marie Callender’s was compelled to terminate their license agreement in early June 2019 and is now asking for the court’s assistance in closing the 26 restaurants.“
A hearing is scheduled for next week and a federal judge will determine if the Campbell locations will shutter permanently. Pittsburgh-based Campbell acquired 27 Perkins stores out of bankruptcy court in 2018. Per the lawsuit, the company had to negotiate with a bankruptcy trustee to ensure it could fund the deal.
The loss of these franchise locations—which makes up 7 percent of Perkins 369-unit footprint (there are 254 franchises)—could have a big impact on the company. Perkins & Marie Callender’s, which reportedly has about $100 million in debt, has been searching for a buyer, but has yet to find a suitor.
Debtwire recently reported Perkins & Marie Callender’s struggled to find a buyer due to its lack of growth, past issues, and a competitive operating environment, especially for legacy sit-down chains.
The company could file for bankruptcy protection to seek a sale. According to Debtwire sources, Perkins & Marie Callender’s recently tapped MorrisAnderson as a financial adviser to explore multiple options, including completing an auction within the parameters of a bankruptcy filing.
Perkins & Marie Callender's Inc. filed for chapter 11 bankruptcy protection in June 2011 after securing key creditors’ support for a plan to cut the company’s $440 million debt. It reported assets of $290 million in its bankruptcy petition at the time.
The company emerged that December with three members of Minnesota-based Wayzata Investment Partners LLC on the board of directors. Funds managed by the Wayzata-based private equity firm were now majority stakeholders. Debtwire said the company exited bankruptcy with fewer stores and debt of $138 million.
Perkins & Marie Callender's was formed in 2006. Affiliates of private-equity firm Castle Harlan Inc. combined Perkins Restaurants, founded in 1958, and Marie Callender’s, which was created in 1948.
The April before its bankruptcy filing, Perkins owned and operated 150 restaurants in 13 states and 314 franchised-run units in 31 states and throughout Canada. It owned and operated 85 Marie Callender’s restaurants in nine U.S. states and had 37 franchises in the U.S. and Mexico. Before the bankruptcy, the company said it launched a store-reduction program to shutter 65 of its company-owned locations—a move that would reduce its workforce by about 2,500 people.
ConAgra Foods, Inc., also purchased the Marie Callender's brand trademarks from Marie Callender Pie Shops, Inc., for $57.5 million in June 2011.