Popular Austin-based delicatessen franchiser Schlotzky’s, Inc. filed a chapter 11 reorganization case (case no. 04-54504) today in San Antonio.
The case was assigned to U.S. Bankruptcy Judge Leif Clark, who is an able and experienced bankruptcy jurist. A team from Haynes & Boone, LLP — led by Dallas-based partner Robert Albergotti — is representing Schlotzky’s in the chapter 11 case. Judge Clark has set a hearing for 10:30 a.m. tomorrow in San Antonio to hear a slew of “first day” motions that Haynes & Boone filed on behalf of Schlotzky’s today.
The company has more than 500 outlets in 36 states and six countries. Upon filing, Schlotzsky’s issued a public statement saying that operations at its shops would continue normally during the reorganization, but it’s a safe bet that more than a few of those shops will close during the reorganization. Schlotzky’s owns 21 “company” shops and franchisees own the balance of the stores.
Schlotzsky’s has been reeling for some time in the intensely competitive deli business that Subway and Quizno’s dominates. Schlotzsky’s recently cut 20 percent of its corporate staff and closed 15 company-owned shops in July. The company reported a net loss of $11.7 million in 2003 in comparison to a loss of about $200,000 in 2002, and lost another $671,000 in the first quarter of 2004.
Houston's Clear Thinkers
Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities.
I love Schlotsky’s, but having been to the white elephant on Kirby between W. Alabama and Westheimer, I’m not surprised. It’s big, it’s fancy (for them) and it’s always empty.
Although the business model has been successful for some firms, my experience is that companies that rely on franchisees as a primary source of expansion and income tend to struggle. With Schlotzky’s essentially relying completely on franchisees to make investment decisions on new locations, the company has had to endure the resulting problems associated with franchisees becoming disgruntled (and not paying franchise fees) when customers do not show up to eat at bad locations. I agree that their product is sound, but even good products get trampled by misguided business decisions.
Quizno’s is better.