Welcome to the 132nd Pari Passu Newsletter. 

Earlier this year, we covered the case of Red Lobster and learned how complex elements fit together in its bankruptcy. Today, we are looking at another restaurant bankruptcy, BurgerFi.

We will see how shifting consumer tastes from premium goods to value deals, combined with high operating expenses, led to the company’s inability to service its debt. Through the case of BurgerFi, we will also learn about restaurant-specific operating metrics and understand how they contribute to restaurants’ profitability.  

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BurgerFi Overview 

Founded in 2011, BurgerFi International, LLC (“BurgerFi”) started as a fast-casual restaurant chain known for its “better burger” concept, focus on quality, all-natural ingredients, and classic American menu items such as premium burgers and hand-cut fries [1]. BurgerFi’s commitment to its premium positioning in the fast-casual industry was deeply ingrained in its operations; the company’s sole stated purpose was a definition of the invented term “BurgerFication:”

BurgerFi’s patties are made from never-frozen, 100% natural Angus beef free from additives, placing the company’s patties into the top ~1% of US beef. The company catered toward customers who valued sustainability and environmental initiatives through its VegeFi burgers (100% plant-based), free-range chicken, and use of locally sourced ingredients. All of these factors allowed the company to attract a loyal customer base and differentiate itself from other fast-food competitors [2]. BurgerFi’s popularity is reflected in its numerous awards and recognitions from online food reviews and restaurant industry outlets; the company boasts titles such as SOBE Wine and Food Festival’s “The Very Best Burger” in 2023, USA Today’s “Best Fast Food Burger” in 2023, and Fast Casual’s #1 Brand of the Year in 2023 [1]. 

Building on its brand strength and growth in the fast-casual industry, BurgerFi acquired Anthony’s Coal Fired Pizza & Wings (“Anthony’s”), a premium pizza and wings chain that has also amassed many awards in the fast-casual industry, in November 2021 [1]. To keep things clear, we will refer to BurgerFi International (the consolidated company) as “BurgerFi” and the individual brand of BurgerFi as “BurgerFi Brand.” 

As of September 2024, the company operates 93 BurgerFi brand restaurants (17 corporate-owned and 76 franchised locations) and 51 Anthony’s restaurants (50 corporate-owned and 1 dual-brand franchised location) across the US, Puerto Rico, and Saudi Arabia [1]. 

Corporate History

From 2013 – 2015, BurgerFi underwent rapid growth and expanded by 25 – 30 locations per year, becoming one of the fastest growing brands in the better burger segment. As the fast food landscape became more competitive, BurgerFi pivoted from expanding to strengthening its infrastructure and operations to become more scalable. Specifically, the company added a centralized call center to streamline phone orders and second make-lines in kitchens (duplicate prep stations specifically dedicated to handling orders not made in-store) to handle takeout and delivery orders [3]. 

Both of these developments helped the company become more scalable. In 2018, BurgerFi was back in growth mode with 40% of the company’s systemwide sales (combined sales from both corporate-owned and franchised locations) attributable to takeouts. It is important to distinguish between BurgerFi’s systemwide sales and its revenue: systemwide sales reflect total sales across all franchised, corporate-owned, and ghost kitchen locations, while revenue represents only the portion of those sales that BurgerFi actually earns [6]. As such, systemwide sales reflects a more comprehensive picture of overall consumer traffic, while revenue reflects financial gains. With stronger infrastructure now in place, BurgerFi began establishing partnerships with major delivery services such as DoorDash and Uber Eats [4]. 

In January 2020, Nation’s Restaurant News named BurgerFi’s president, Charlie Guzzett, the second most influential restaurant executive in the US. By June 2020, BurgerFi had expanded to 125 locations and launched its first ghost kitchen with REEF Technology (a network of delivery-only kitchens), achieving the highest opening sales for a new brand in that type of REEF location. BurgerFi’s REEF ghost kitchens were opened to expand delivery reach and capitalize on the pandemic-influenced shift toward off-premise dining. Sales under these ghost kitchens fell under the digital channel sales portion of BurgerFi’s systemwide sales, which we will cover in detail later on in the Business Model section. The company had planned to launch 15 new locations by 2021 [3]. 

It was evident that BurgerFi was growing rapidly, and special purpose acquisition company (SPAC) OPES Acquisition Corp saw this as an opportunity to capitalize on the company’s upward trajectory in June 2020. A special purpose acquisition company is a shell company that raises money through an IPO to acquire or merge with a private company, which it then takes public with a traditional IPO. SPAC IPOs are typically faster and reduce some regulatory burdens for the private company. For example, let’s say Company A is a private business that wants to go public. Instead of going through the traditional IPO route, it merges with a SPAC called XYZ Acquisitions, which has already raised money from investors through its own IPO. After the merger, Company A goes public using XYZ Acquisitions Corp.’s listing, and XYZ Acquisition’s shareholders now own a piece of Company A. Similar to our example, BurgerFi was acquired by OPES Acquisition Corp in December 2020 for a $100mm purchase price in the form of $30mm in cash and 6.6mm newly issued shares [2]. By the end of 2020, BurgerFi (listed on NASDAQ as “BFI”) had a market cap of around $250mm [9]. 

After going public at the end of 2020, BurgerFi acquired Anthony’s Coal Fired Pizza & Wings for $161mm ($33mm in common stock, $53mm in new junior non-convertible preferred equity, and the assumption of $75mm in existing debt) in November 2021. This acquisition was part of a strategy to expand the company’s premium fast-casual platform [5], and by the end of 2022, the company had fully integrated the back-end operations across both brands, generating over $2.5mm in annualized synergies [8]. After acquiring Anthony’s BurgerFi’s changed its fiscal year to end in early January of the next year rather than December 31 of the same year; FY 2022 ended on January 2, 2023 and FY 2023 ended on January 1, 2024 [7] [12]. The Anthony’s acquisition significantly boosted revenues: BurgerFi’s consolidated annual revenue increased from $69mm in FY 2021 to $179mm in FY 2022. However, the acquisition also significantly increased operating costs. Anthony’s accounted for 76% of the $144mm in restaurant-level expenses (direct costs tied to running individual restaurants) while contributing 72% of total revenue in FY 2022. These expenses made up around half of total operating expenses in FY 2022. Despite the added cost, restaurant-level profit (restaurant sales – restaurant-level opex) rose from $7mm in FY 2021 to $23mm in FY 2022, while restaurant-level expenses as a percentage of revenue remained steady at around 85% [7]. 

As we’ll get to shortly, the acquisition of Anthony’s was poorly timed and failed to help BurgerFi improve its bottom line; net income losses totaled negative $123mm in FY 2021 and negative $103mm in FY 2022. With capex totaling $11mm in FY 2021 and $2.5mm in FY 2022, free cash flow came out to be negative $18mm in 2021 and negative $0.3mm in FY 2022 [7]

Corporate Structure 

BurgerFi’s growth and acquisitions gave it a broader operational footprint, so let’s briefly break down the company’s corporate structure. 

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