The largest fast-food franchisee in America, which owns 1,600 Pizza Hut and Wendy's locations, files for bankruptcy

• NPC International — the largest franchisee in the US, which owns more than 1,600 Pizza Hut and Wendy's restaurants — filed for Chapter 11 bankruptcy protection on Wednesday.
• The franchisee blamed its financial struggles on Pizza Hut's poor performance, as well as ongoing industrywide struggles, such as rising minimum wage and volatile ingredient costs.
• The coronavirus pandemic helped boost sales at NPC's Pizza Hut restaurants but also contributed to disruption and required expensive new safety measures.

The largest franchisee in the US filed for bankruptcy.

On Wednesday, NPC International — a company that owns and operates more than 1,200 Pizza Hut and nearly 400 Wendy's restaurants — filed for Chapter 11 protection in the Texas Southern Bankruptcy Court.

NPC has struggled financially in recent years, in large part because of the performance of its 1,227 Pizza Hut restaurants, which make up about 20% of all of the chain's US locations, according to the company's filing. Pizza Hut has struggled to grow same-store sales across the system, as rivals such as Domino's and Papa John's have thrived.Advertisement

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"Deteriorating brand recognition has been further exacerbated by decreased menu innovation and the lack of a clear, long-term strategy by the Pizza Hut Franchisor to address the brand issues to provide a clear and differentiated identity," the filing said.

The coronavirus pandemic "unexpectedly provided some relief" for NPC, as Wendy's offered franchisees concessions, and Pizza Hut saw sales grow as customers ordered more delivery.

However, new safety measures have been expensive, costing the company about $750,000 per month. NPC said in the filing that Pizza Hut sales were once again declining and the pandemic has contributed to longer-term issues, such as rising labor costs and the availability of ingredients, including fresh beef.

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The restaurant industry is struggling amid the pandemic

The bankruptcy filing does not mean that NPC will close Pizza Hut or Wendy's locations. Instead, NPC is attempting to reduce debts, including plans to sell some of its restaurants. Pizza Hut said in a statement NPC's filing was "expected" and that the chain viewed it as "an opportunity to create a better future for NPC's Pizza Hut restaurants." Advertisement

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"As NPC works through this process, we support an outcome resulting in an organization with a lower, more sustainable level of debt, ownership focus on operational excellence and a greater level of restaurant investment," the statement said. "These changes will help NPC's Pizza Hut restaurants generate the same momentum we are seeing throughout the Pizza Hut US business and strengthen the overall health and performance of the entire system for the long term."

While chains have been better positioned during the coronavirus pandemic than independent restaurants, they have also been hit hard as people radically change their eating habits.

Chains including Starbucks, IHOP, and Denny's have announced plans to close more than 900 locations because of the pandemic, Business Insider's Irene Jiang reported. Numerous individual franchisees have filed for bankruptcy as restaurants' sales plummet.Advertisement

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"Every franchisee is a small business, and they had to close up, and they're sucking wind," Roger Lipton, a restaurant-industry investor, told Business Insider in May. "They're hemorrhaging."