Title: Freddy's Franchisee Bankruptcy: Just the Tip of the Iceberg?
The news that M&M Custard, a large franchisee of Freddy's Frozen Custard & Steakburgers, has filed for Chapter 11 protection might seem like isolated bad news. But looking at the broader economic data, this bankruptcy filing (along with similar struggles at Dairy Queen and other chains) could be a symptom of a larger, more systemic problem brewing in the fast-food sector.
The Macroeconomic Headwinds
M&M Custard's filing, reporting $5.2 million in assets against $27.7 million in liabilities, is a stark numerical illustration of the pressures facing restaurant franchisees. The company lists between 100 and 199 creditors. It's not just about one company's mismanagement; it's about a squeeze affecting the entire sector.
McDonald's CEO Chris Kempczinski pointed to a "bifurcated consumer base" with lower-income consumers reducing their visits to quick-service restaurants by nearly double digits in the third quarter. Chipotle's CEO echoed this sentiment, noting that lower to middle-income guests are pulling back on frequency. The reasons? Unemployment, student loan repayments, and slow wage growth. These aren't just talking points; they represent real shifts in consumer behavior, reflected in the bottom lines of these businesses.
I've looked at hundreds of corporate statements, and the consistency of this narrative across different chains is hard to ignore.
The question is: are these temporary setbacks, or do they signal a more profound, structural change in the way people spend their money on food? Will this trend continue well into 2026, as McDonald's CEO believes?
Beyond Freddy's: A Broader Trend?
It's easy to dismiss one franchisee's bankruptcy as an isolated incident. However, The Street reports that other chains similar to Freddy’s have closed stores this year. Dairy Queen, for example, shuttered dozens of locations in 2025, including several in Texas amid a legal dispute with its corporate headquarters over royalty payments and remodels. As reported by Newsweek, this Dairy Queen Rival Files for Bankruptcy.
This isn't just about shifting consumer preferences; it's about the financial viability of the franchise model itself. Are royalty structures and remodel requirements placing undue burdens on franchisees, especially when their customer base is facing economic hardship? The data suggests a potential mismatch between corporate expectations and the economic realities on the ground.
M&M Custard plans to close several stores during its bankruptcy reorganization, which is not surprising. But how many others are teetering on the edge, waiting for the next economic downturn or unexpected expense to push them over?
Details on exactly which Freddy's locations are slated for closure remain scarce, but the impact on local communities will be tangible.
Just a Blip, or the Start of a Meltdown?
The bankruptcy filing states that funds will be available to pay out to its unsecured creditors. This is a positive sign, but it doesn't negate the fact that a significant financial restructuring is necessary. The company is trying to reorganize and restructure its debts, but can they adapt quickly enough to the changing economic landscape?
The restaurant industry is notoriously competitive, and consumer loyalty is fickle. If Freddy's or other chains fail to adapt, they risk losing market share to competitors who are more attuned to the needs and budgets of lower and middle-income consumers.
The Real Cost of a Custard Cone
A Wake-Up Call for Fast Food
The M&M Custard bankruptcy is more than just a business failure; it's a symptom of deeper economic anxieties. The numbers paint a clear picture: lower and middle-income consumers are struggling, and their struggles are impacting the restaurant industry. Unless these chains adapt to this new reality, we may see more bankruptcies and closures in the months and years to come.