Once-profitable coffee companies are restructuring in Chapter 11

On Behalf of | Oct 26, 2020 | Chapter 11 and Chapter 7 business bankruptcies |

There are many great things Austin is known for, and one of those is access to great coffee. Like many large cities, Austin offers a variety of local roasting operations and independently owned coffee shops staffed by artisans who are passionate about their craft. In good economic times, these businesses are booming.

It would be tempting to think that coffee shops are “recession-proof,” since most of us are unwilling to give up our daily doses of caffeine. But like many other businesses, coffee shops and roasters have been hit hard by the Covid-19 pandemic – both here in Austin and in other major U.S. Cities. The reassuring news, however, is that at least some of these businesses can use Chapter 11 bankruptcy to refocus their operations and regain profitability during this difficult time.

Beloved regional coffee companies pursuing Chapter 11

In Pittsburgh, Pennsylvania, news sources recently announced that Ed’s Beans Inc. would be filing for Chapter 11 due to financial problems largely caused by the pandemic and the forced closure of many of its coffee shops. Ed’s Beans Inc. is the parent company of a wholesale coffee roasting business known as Kiva Han and of the Crazy Mocha Coffee Co., which has been called “Pittsburgh’s biggest homegrown coffee shop chain.”

In New York City, the Brooklyn Roasting Company also recently announced a Chapter 11 filing. The BRC includes both a wholesale roasting business and seven retail cafes, and it suffered major financial hardship this year due to the forced shutdown of its coffee shops. It could not afford to continue paying rent with such a dramatic reduction in business, and the company was forced to lay off the majority of its café staffers.

Downsizing and refocusing on profitability

The BRC’s bankruptcy filing comes with an announced plan to keep the company afloat during the pandemic. Although its coffee shops are closed indefinitely, the company will focus solely on growing its wholesale roasting business. In time, the company could rebuild its retail operations, but will let those go for now. The company’s business manager noted that although they are facing financial trouble, the BRC still retains financial assets and good-will assets that include a high-end production facility, a great reputation and a dedicated core management team.

Can your business change direction through Chapter 11?

Obviously, these two coffee companies are not based here in the Austin area, but their stories are indicative of what many Austin small business owners are facing. And like these companies, your business may benefit from a Chapter 11 filing if you believe it could regain stability and profitability with some outside help and a plan for debt reorganization.

Chapter 11 bankruptcy focuses on business restructuring, and it is often appropriate for companies that have fallen on hard times due to outside circumstances that don’t reflect their long-term potential for profitability. Although a Chapter 11 plan isn’t quick or easy, it can provide a crucial opportunity to hold on to a business you worked so hard to build.