The recent Chapter 11 bankruptcy filing by M&M Custard, one of Freddy’s Frozen Custard & Steakburgers’ largest franchisees, has sparked concern across the brand’s franchise network. Yet while the filing highlights the financial strain facing multi-unit operators, Freddy’s corporate and other franchisees remain largely insulated from direct fallout—at least for now.
🔍 What Happened: M&M Custard’s Collapse
On November 14, M&M Custard filed for bankruptcy protection, citing $27.7 million in liabilities against $5.2 million in assets. The company operated 31 Freddy’s locations across six states, with its Chicago-area stores identified as “toxic assets” due to sustained negative EBITDA and poor market traction.
Despite efforts to improve operations and expand in the Chicago market, M&M began closing stores in early 2024. The company’s remaining units continue to operate during restructuring, generating $48.4 million in annual revenue.
🛡️ Corporate Response: Containment and Reassurance
Freddy’s corporate was quick to respond, calling the bankruptcy an “isolated situation” and emphasizing that it does not reflect the brand’s overall health. In a public statement, the company assured stakeholders that it would work to minimize disruption at affected locations and maintain a consistent guest experience.
This messaging was critical—not just for customers, but for the hundreds of other Freddy’s franchisees who rely on corporate stability and brand reputation.
🌐 Impact on Other Franchisees: Limited but Cautionary
While M&M Custard’s bankruptcy is not expected to trigger a domino effect, it does serve as a cautionary tale for other Freddy’s operators. Key implications include:
- Market Selection Scrutiny: Franchisees may reevaluate expansion plans in high-cost or low-yield markets like Chicago, where M&M struggled with regulatory burdens and limited buyer interest.
- Operational Efficiency Pressure: The filing underscores the importance of unit-level profitability. Franchisees may face increased pressure to optimize labor, food costs, and real estate decisions.
- Financing and Lending Hesitation: Lenders may become more conservative in financing Freddy’s expansions, especially for multi-unit operators with exposure to volatile markets.
- Brand Reputation Management: While Freddy’s remains a top-100 franchise brand with 560+ units and $987.6 million in 2024 sales, any high-profile bankruptcy can create reputational ripples that require proactive communication.
📈 Franchise System Resilience
Despite the setback, Freddy’s franchise system remains robust. The brand has more than doubled its unit count and nearly tripled sales since 2016. Average unit sales remain strong at $1.86 million, and corporate ownership recently transitioned to Rhône Group, signaling continued investor confidence.
Other franchisees have not reported similar financial distress, and Freddy’s corporate maintains a strong support infrastructure for training, marketing, and operations.
Bottom Line: M&M Custard’s bankruptcy is a wake-up call—not a warning siren. It highlights the risks of aggressive expansion and market misalignment, but Freddy’s broader franchise network remains stable, supported by strong corporate oversight and resilient unit economics.
See More: Freddy’s Franchisee M&M Custard Files for Bankruptcy