Famous Brands initiates insolvency process for GBK

The company fights off the worst-case scenario of bankruptcy for its UK burger business. 

Famous Brands – the operator of eateries such as Steers, Debonairs Pizza, tashas, Wimpy and others – has launched an insolvency process for its UK-based struggling burger business, Gourmet Burger Kitchen (GBK), the company announced on Wednesday. 

Famous Brands, which expanded in the UK by buying GBK for R2.1 billion in 2016, has appointed accountancy firm Grant Thornton to initiate a company voluntary arrangement (CVA).

A CVA process is an insolvency procedure that is used by struggling firms to rescue their operations by cutting costs through the closure of outlets and cut rents.  

“The CVA process is unique to the United Kingdom and is a process used by financially distressed businesses in order to come to a binding agreement or compromise with their unsecured creditors,” said Famous Brands. 

“Typically, the process is used to restructure a business’s leased property portfolio in line with current market valuations. The CVA process has the objective to ensure financial viability and the sustainability of the business into the future.”

In other words, it’s a process to protect a company from the worst-case scenario of bankruptcy. 

According to a Daily Mirror media report, some 17 GBK restaurants have been earmarked for closure, impacting 250 jobs. GBK operates around 80 restaurants in the UK.

Since Famous Brands acquired GBK in 2016 – the biggest deal under former CEO Kevin Hedderwick that introduced debt in the company for the first time – the business has not lived up to expectations.

GBK’s contribution to Famous Brands’ profitability is taking longer than initially anticipated, as the UK burger business has been by hit lower consumer spending and concerns that Brexit might result in disposable incomes being under pressure.

The burger business is also impacted by the rise of online food delivery and fierce competition in the premium burger segment, analysts have said. 

GBK joins its peers that have either launched a CVA process or embarked on the closure of restaurants in recent months. 

According to the Daily Mirror, rival chain Byron closed 16 restaurants around the UK following a CVA deal in January this year. Other restaurants that have resorted to store closures over the past 12 months include Carluccio’s, 62 Prezzo and Chimichanga.

Famous Brands recently said it faces an R874 million impairment on the GBK acquisition, suggesting that it overpaid for the acquisition. 

The impairment of GBK by Famous Brands underscores the dangers of South African businesses buying large businesses in offshore markets without proper management and business strategies. Domestic companies have diversified to offshore markets – with aplomb – in a desperate attempt to find growing economies and markers as South Africa flounders.