A combination of distressing economic factors forced several coffee cafe chains and roasteries to file for Chapter 11 protection to reorganize or sometimes Chapter 7 liquidation if all is lost.
The economic issues that most debtors in the coffee business blame for their financial distress are the lingering effects from the Covid-19 pandemic, a high interest-rate environment, rising inflation, and another huge problem – a 65% increase in imported coffee bean prices since January 2021, reported by Food Manufacturing.
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Netherlands-based global coffee bean supplier Mercon Coffee Corp. on Dec. 7 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York to seek a sale of its assets, wind down its operations and pursue a liquidation plan, according to court filings.
The coffee supplier said it faced headwinds in recent years, including a global impact from the Covid-19 pandemic and a decline in the market price for coffee, according to bankruptcy filings.
Mercon said it would seek $40 million in debtor-in-possession financing from its pre-petition lenders to pay operating expenses, finance its Chapter 11 case and to pursue a liquidation plan.
The debtor in court papers reported less than $11.8 million in cash on hand and $363.3 million in funded debt obligations, including $7.5 million owed to Starbucks.
Related: Popular fast-food burger chain files for Chapter 11 bankruptcy
Coffee cafe and roastery operator Cottonwood Coffee of Brookings, S.D., on July 2 filed for Chapter 11 in the United States Bankruptcy Court for the District of South Dakota, likely suffering lingering effects from the Covid-19 pandemic and rising coffee prices.
Switchback Coffee Roasters of Colorado Springs, Colo., filed for Chapter 11 bankruptcy protection on Aug. 19 in U.S. Bankruptcy Court for the District of Colorado. Switchback Coffee reported having $50,000 to $100,000 in assets and $500,000 to $1 million in liabilities.
The company had not commented on why it needed to file, but the rise in coffee prices and Covid-19's effects are good bets as the causes. The company was still taking online orders and appears to be operating fully.
In the filing, the company said that funds would be available for unsecured creditors. Switchback also noted that its assets "include perishable goods or assets that could quickly deteriorate or lose value without attention."
Red Bay Coffee files for Chapter 11 bankruptcy
Finally, coffee cafe chain Red Bay Coffee on Aug. 29 filed for Chapter 11 bankruptcy to reorganize as it has suffered a long-term impact from the Covid-19 pandemic and rising costs of two lawsuits. Higher coffee-bean prices likely contributed to the company's distress as well.
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The Oakland, Calif., company listed about $250,000 in assets and $3.3 million in liabilities in its petition, World Coffee Portal reported. The company reportedly had a net loss of over $850,000 from January to July 2024.
Red Bay Coffee, founded in 2014 by Keba Konte, faces high costs of a sexual harassment lawsuit filed in 2018 and breach of contract litigation.
The coffee company currently operates six coffee cafes, located in Oakland, San Francisco and Berkeley, Calif.; a coffee roastery in Oakland, and a coffee van.
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