M&M Custard, one of the largest franchise operators in the Freddy’s Frozen Custard & Steakburgers network, has filed for bankruptcy after an aggressive push into Chicago left the business with unsustainable losses.

The franchisee, which runs 31 restaurants across six Midwest states, reported about $5 million in assets and roughly $28 million in liabilities, according to court filings.

M&M Custard said its financial strain stems from its 2021 move into the Chicago market. It acquired three existing restaurants and expanded to 11 sites through a mix of openings and further acquisitions, but the portfolio failed to reach sustainable trading levels and generated negative EBITDA (earnings before interest, taxes, depreciation, and amortization) 

“M&M Custard believes that without the drag from the Chicago stores, the business can be successfully reorganised,” managing member Eric Cole wrote in court papers.

The franchisee said it invested around $1 million to acquire the Chicago locations and secure exclusive development rights, an outlay it now describes as a “toxic asset”.

Last year, it split the business into two portfolios: A profitable legacy estate of 31 established restaurants generating more than $48 million in revenue, and the underperforming Chicago group that ultimately forced closures.

M&M Custard reported approximately $58.1 million in revenue overall.

In an effort to stem losses, the company shut 11 Chicago restaurants last year, reducing its footprint from 42 units to the current 31.

The Chapter 11 process is intended to restructure the company’s debts while preserving the viable legacy business.

However, Freddy’s emphasised that M&M’s bankruptcy does not reflect the wider system’s performance.

“This is not a reflection of Freddy’s corporate stability or the performance of other franchisees,” the brand told Restaurant Dive. 

“We are fully engaged and will do all that we can to ensure that the restaurants see little to no interruption while M&M works to complete their restructuring.”