Two more small restaurant chains, both of which are based in Northern California, have filed for federal bankruptcy protection this month amid a brutal financial period for the industry.
Red Bay Coffee, an eight-unit coffee shop chain and roasting operation based in Oakland—which counts former McDonald’s CEO Don Thompson among its early investors—sought federal debt protection.
Mary’s Pizza, a 10-unit pizza operator that traces its history to 1959, said on its website that it filed for bankruptcy as part of a strategy to hand over ownership to the founder’s granddaughters. The company, based in Sonoma, California, declared Chapter 7 bankruptcy with $100,000 to $500,000 in assets and $500,000 to $1 million in liabilities.
The two companies add to a growing list of restaurant chains that have taken this step, including several smaller chains with extensive histories.
Most companies have been undone by a combination of excessive leverage, weak sales, higher costs and unforeseen factors such as lawsuits or other issues. At least 20 restaurant chains have filed for bankruptcy this year, many of them since May. Several others have avoided bankruptcy court with sales of debt to investors.
Red Bay Coffee was founded in 2014 by Keba Konte and completed an investment round five years later that featured Thompson, who has become an active investor in restaurants and other companies since his departure from McDonald’s in 2015.
The company bills itself as part of the “fourth wave of coffee” that’s focused on quality and sustainability. It features a public roastery in Oakland that has serves as a hub for the local community, according to court documents. It has eight other shops listed on its website and a wholesale coffee operation.
Red Bay blamed its bankruptcy on the impact from the pandemic as well as “spiraling costs and related uncertainties” related to a pair of lawsuits, one from a former employee and another a breach of contract case from a landlord, according to court documents.
The company also acknowledged it has an open investigation before the U.S. Equal Opportunity Commission related to claims raised by a former employee, court documents say.
The company has $3.3 million in various liabilities, including two $550,000 loans to the company made by members of its board of directors, according to court documents.
Mary Fazio founded Mary’s Pizza Shack in 1959 and the concept became an institution in Sonoma County. The company on its website said that the filing was part of a strategy developed two years ago to preserve the future of the brand.
Mary’s said the plan has been to restructure from a single corporation into smaller, “family-owned units.” Fazio’s granddaughters will acquire the brand as part of the process.
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