Restaurant Franchise Insolvency Risks: How Supply Chain and Real Estate Debt Burdens Reshape the Fast Casual Dining Sector

The recent Chapter 11 bankruptcy filing by M&M Custard LLC, a major franchisee of Freddy's Frozen Custard & Steakburgers, has become a cautionary tale for the fast casual dining sector. , the company's financial collapse underscores the growing fragility of franchise models in an era of economic bifurcation and operational strain according to reports. As M&M Custard plans to shutter several locations across six U.S. states, the case highlights how supply chain disruptions and real estate debt burdens are accelerating insolvency risks for even well-established brands.

Franchisee Financial Strains and Regional Closures

M&M Custard's bankruptcy is not an isolated incident. The fast casual dining sector has seen a wave of closures in 2025, with other Freddy's franchisees and Dairy Queen locations also exiting markets. These failures are driven by a combination of rising fixed costs-particularly real estate debt-and declining consumer spending among lower-income demographics. For M&M Custard, the company's liabilities far outstrip its assets, a gap exacerbated by high-interest debt tied to commercial leases and property holdings. The franchisee's request for bankruptcy court approval to transfer funds between locations reflects a desperate attempt to stabilize cash flow amid these pressures.

The regional impact is stark. , Kansas, Illinois, Indiana, Kentucky, and Tennessee will remain open during reorganization, but closures are inevitable. This mirrors broader trends in the sector, where operators with high fixed costs and thin margins are particularly vulnerable to shifts in consumer behavior and economic conditions according to reports.

and Real Estate Debt: A Perfect Storm

While M&M Custard's parent brand remains unscathed, the franchisee's struggles are emblematic of systemic challenges in the fast casual dining sector. Supply chain bottlenecks, though less discussed in the immediate context of this bankruptcy, have historically inflated input costs for food and packaging. Meanwhile, real estate debt-often tied to long-term leases or property ownership-has become a double-edged sword. High interest rates have increased borrowing costs, while declining foot traffic in mall-based or suburban locations has reduced revenue potential according to analysts.

The sector's reliance on efficient logistics further complicates matters. As noted by real estate analysts, the growing demand for last-mile delivery infrastructure-such as multi-let industrial properties-highlights the sector's indirect dependence on real estate trends. For fast casual chains, this means that rising warehouse rents or logistical inefficiencies can erode profit margins, particularly for franchisees with limited financial flexibility.

and Investor Implications

The volatility in the fast casual dining sector is not confined to the U.S. In Mexico, for instance, rapid urbanization and rising disposable incomes are driving market growth, but economic instability and a fragmented market pose risks. While U.S. investors may not face the same challenges, the broader lesson is clear: operators must adapt to shifting consumer preferences and macroeconomic headwinds.

For M&M Custard, the path forward hinges on restructuring its debt and renegotiating lease terms. However, the broader sector faces a more existential question: Can franchise models survive in an environment where real estate costs and supply chain volatility are here to stay? As one analyst noted, "The ability to secure flexible real estate holdings and optimize supply chain efficiency will determine which operators thrive-and which fail."

Conclusion

The M&M Custard bankruptcy is a microcosm of the fast casual dining sector's broader struggles. As supply chain and real estate debt burdens mount, franchisees with limited financial buffers are increasingly at risk. For investors, the lesson is twofold: first, to scrutinize the balance sheets of restaurant operators, particularly those with high fixed costs; and second, to recognize that sector resilience will depend on innovation in logistics and real estate strategy. In a market where margins are razor-thin and consumer spending is unpredictable, the path to survival is anything but certain.