Friendly Franchisees Corporation, one of the largest Carl's Jr. franchise operators in California, has filed for Chapter 11 bankruptcy and announced plans to permanently close 10 locations and sell 49 others, Fox Business reported Tuesday.
The 59 affected restaurants represent a significant contraction for one of the West Coast's most recognizable fast food chains and the latest example of the financial pressure California's restaurant industry has been absorbing since the state raised the minimum wage for fast food workers to $20 an hour in April 2024.
The specific breakdown is 10 permanent closures and 49 restaurants being sold, presumably to buyers who believe the locations can be operated profitably under different management or at different cost structures.
Bankruptcy filings of this type typically seek a reorganization that allows the company to shed underperforming locations while preserving the ones that can survive, which is what the 49-restaurant sale process reflects.
The 10 that are closing were presumably the locations that no buyer was expected to take on at any price that made the math work.
Why Is California Fast Food Getting Hit So Hard?
California's AB 1228, the FAST Recovery Act, raised the minimum wage for fast food workers at chains with more than 60 national locations to $20 per hour, effective April 1, 2024.
The legislation was the most significant change to the fast food labor market in California's history and was designed to address decades of wage stagnation in an industry that employs hundreds of thousands of California workers.
The tradeoff that critics of the legislation predicted, that higher labor costs would force closures, reduce hours or accelerate automation adoption, has been materializing in franchise bankruptcy filings, closure announcements and location counts across the industry ever since.
Rubio's went bankrupt and closed locations. Pizza Hut franchise operators cut staff. Round Table Pizza locations disappeared. Now one of Carl's Jr.'s largest California operators is in bankruptcy court with 59 locations on the table.
Carl's Jr. itself, the brand, owned by CKE Restaurants Holdings, which also owns Hardee's, is not filing for bankruptcy. The franchisee is.
The brand will continue to operate in California through other franchisees and company-owned locations.
The 10 restaurants closing may simply disappear from the chain's footprint. The 49 being sold may continue operating under new ownership.
What Friendly Franchisees Corporation's bankruptcy adds to the California fast food story is a data point, another large operator that concluded it could not make the numbers work under current conditions.