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UPDATE: September 11, 2024: This article has been updated with statements from Dickey’s Barbecue Pit.
Dive Brief:
Smokin’ Dutchman Holdings, a four-unit Dickey’s Barbecue Pit operator in Michigan, filed for Chapter 11 Bankruptcy protections on Monday.
The operator listed franchising requirements as a factor driving it to file for bankruptcy, saying Dickey’s “imposed extreme and unreasonable financial demands,” according to a declaration by Smokin’ Dutchman CEO Krage Fox.
Dickey’s is the latest restaurant brand to see a franchisee turn to courts for relief from onerous debt obligations. But while other restaurant chains have generally seen operators fault macroeconomic problems for bankruptcy, Smokin’ Dutchman largely laid responsibility for its fiscal problems at Dickey’s doorstep.
Dive Insight:
Fox did not explain what aspects of Dickey’s franchising requirements caused financial problems. Dickey’s charges its franchisees a 6% royalty rate and a 3% marketing rate, which is not substantially above the rates charged by many other brands, according to its franchise disclosure document. Dickey’s did not respond to a request for comment regarding Smokin’ Dutchman’s Chapter 11 filing.
Jeff Gruber, Dickey’s SVP of franchise relations, wrote in an email to Restaurant Dive that Smokin’ Dutchman’s characterization of its franchising terms was inaccurate.
“When Smokin’ Dutchman communicated its individual difficulties roughly 18 months ago, Dickey’s responded by providing extensive supplemental operational support and corporate resources in an effort to stabilize Smokin’ Dutchman’s business operations,” Gruber said. Dickey’s, Gruber said, will continue to offer support to Smokin’ Dutchman.
Additionally, Gruber said that Dickey’s is in the middle of a capital reinvestment program intended to “provide restaurant upgrades, such as new exterior signs, store interior refreshes, technology hardware upgrades and local advertising across the brand.”
Dickey’s doesn’t disclose sales projections for franchised units in its FDD, so it’s difficult to estimate the performance of individual units. However, Smokin’ Dutchman’s annual revenue for 2023 was $3,336,000. Spread across four units, that’s roughly $830,000 per store.
Dickey’s unit count hit 485 in 2021 and held steady at that level through the company’s fiscal 2022, before falling in fiscal 2023 due to the net loss of 15 franchised stores and one company-owned store, according to the brand’s FDD.
The brand’s units tend to be fairly small, according to its FDD, with traditional restaurants ranging from 1,500 to 2,200 square feet. Non-traditional locations designed to operate in places like food courts, airports and stadiums range from 400 to 1,000 square feet, and off-premise-only stores range from 1,000 to 1,300 square feet in size. Smokin’ Dutchman’s units, according to Google Maps Streetview photographs of the units, all appear to be traditional restaurants. This matches the FDD’s description of real estate strategy for traditional Dickey’s units, which are “located in suburban shopping centers or stand-alone buildings located on busy streets.”