ST. LOUIS Sweet Traditions, a Krispy Kreme franchisee with development rights for Illinois, northwest Indiana and eastern Missouri, has filed for Chapter 11 bankruptcy protection, less than two weeks after the bankruptcy filing of a California-based franchisee.
Sweet Traditions plans to close about half of its remaining 15 Chicago-area doughnut shops and cut about 25 percent of its 500 employees but remain in the Chicago market, according to a report Wednesday in the Chicago Tribune. Sweet Traditions also operates two stores in central Illinois and five in the St. Louis area and sells its doughnuts to Chicago-area Jewel Food Stores.
Sweet Traditions already has closed three Illinois tollway locations, which it shuttered in May. High rent and low foot traffic at tollway oases caused the bulk of Sweet Traditions’ financial woes, the Tribune report said.
Sweet Traditions has had a rocky past with Winston-Salem, N.C-based franchisor Krispy Kreme Doughnuts Inc. In July 2005, the franchisee sued Krispy Kreme over its business requirements, including royalties. The franchisee filed an injunction and a restraining order to prevent the franchisor from withholding delivery of its doughnut mix to the franchisee and to allow Sweet Traditions to suspend its contractual obligation to pay royalty fees. The suit was one of several filed against Krispy Kreme by franchisees.
Sweet Traditions’ suit was settled in August 2006, according to a report Wednesday in the St. Louis Post-Dispatch, which quoted the franchisee’s president Laura Schlegel as saying that Krispy Kreme "is very supportive of us and is looking to support us through this transition. That whole [lawsuit] thing has been put behind us."
Among Sweet Traditions’ largest creditors are franchisor Krispy Kreme at $2.5 million; Riderwood Group of Maryland, an investment banking firm, at $2.4 million; landlord Wilton Partners Tollway LLC, $1 million; and GE Capital Franchise Finance Corp., $1 million.
On Aug. 22, Fullerton, Calif.-based Great Circle Family Foods LLC, once Krispy Kreme’s largest franchisee, filed for Chapter 11 bankruptcy protection. Its holdings have dwindled to 12 outlets, from 31 units in May 2004.
As of the time of this posting, Krispy Kreme had not commented publicly on the bankruptcy filings of Sweet Traditions and Great Circle.
Krispy Kreme has been struggling to recover from a freefall that began in May 2004 when the company missed its per-share earnings for the first time. Management was later accused of manipulating earnings and overstating sales, leading to lawsuits and regulatory investigations. A number of franchisees filed for bankruptcy as the franchisor’s stock price plummeted.
In 2005 and 2006, the company closed numerous stores and halted new franchise agreements. This year, it filed a new Uniform Franchise Offering Circular, submitted up-to-date financial statement with federal regulators and settled its lawsuits.
The company and its franchisees now operate about 400 locations globally. Domestically, the units can be found in 41 states.