5 Food Brands that Couldn’t Manage Debt

Ever wonder what happened to your favorite food brand from childhood? While some companies manage their business just fine, others succumb to the pressures of debt and end up folding, leaving consumers without that desired treat . . . at least for a time. In most cases, companies do restructure while under the protection of Chapter 11 and continue to operate, making a comeback. However, as you will shortly see, returning from bankruptcy is no guarantee that things will work out the second time around. Here are a few of the companies that have recently gone out of business or will be bankrupt shortly.

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1. Hostess®

The popular Twinkie manufacturer is in trouble . . . again. In 2004, Hostess filed for bankruptcy but managed a comeback in 2009. Unfortunately, the comeback wasn’t to last, and the sweets company is in the weeds again.

Where did Hostess go wrong? The company is deeply in debt, owing the Bakery and Confection Union Fund the most, more than $994 million. Dozens of other creditors are also waiting for payment. It’s looking like they won’t receive it, however, with Hostess™ filing for Chapter 11 for the second time in a decade. Twinkie sales were down by 2 percent in 2011, a drop the company attributes to more people opting for healthier foods.

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2. Mrs. Fields®

Everyone knows and loves Mrs. Fields the cookie company, but in August 2008, that popularity didn’t help when the company filed for bankruptcy with $196 million in debt. By October, the popular cookie maker was back on the market. While the main company was undergoing all these financial changes, franchisees continued as normal.

In 2011, Mrs. Fields faced a second bankruptcy and focused on restructuring the company to avoid this possibility. With the support of major shareholders, the company hopes to make out-of-court changes to the financial situation and ensure that there is no future Chapter 11.

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3. Dippin’ Dots®

In 2011, Dippin’ Dots filed for Chapter 11 bankruptcy protection, following a long, drawn-out battle with the company’s principal lender. Dippin’ Dots produces small dots of ice cream, specially frozen with liquid nitrogen to create tiny balls. The company is a franchise and has over 140 locations throughout the nation.

The problems started when the economy plummeted and no one wanted to buy the ice cream dots, which cost a few dollars per cup. With sales dropping, debt rose, and Dippin’ Dots ended up owing $12 million. The majority of the debt was to Regions Financial Corp., which pressed for foreclosure, prompting the ice cream manufacturer’s bankruptcy.

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4. Friendly’s® Ice Cream

Ice cream companies seem to be faring poorly in today’s economy, perhaps because of the nonessential nature of the sweet stuff. Friendly’s was another company that filed for Chapter 11 in 2011, and while it had almost 500 restaurants, more than 60 of those were closed due to debt-related issues, in an attempt to restructure the company and make it more viable. Friendly’s managed to get a hold of $70 million in debtor-in-possession financing, which was hoped to help the company make a comeback.

There is promise for the future, however. The company is managing its remaining locations and will be cutting staff to keep costs lower this time around.

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5. Forward Foods, LLC

In 2009, the maker of Detour® energy bars ended up filing for Chapter 11 protection with $25.4 million of debt. The main reason the company found itself in such dire straits was the fact that the majority of the energy bars produced included peanuts from the Peanut Corp. of America, which allegedly had tainted product. Forward Foods was forced to recall potentially contaminated energy bars, destroying around 75 percent of sales. The end result? A company unable to handle the large amount of debt in the face of such a setback.

The Peanut Corp. of America recalled all peanut products that originated from its Texas base after a salmonella outbreak was reportedly linked to the products. Hundreds of food companies received the supposedly tainted peanuts and had to recall their own products, including all peanut-based Detour bars.

All five of these food companies have had problems with debt, and while they may make a comeback after filing for Chapter 11, Hostess proves that this isn’t a guarantee of success. Like many companies that end up bankrupt, unless these organizations change their ways, they will simply end up in the same position again. A second bankruptcy is really not what any company wants to deal with, as it could end up being the death of them.

*The company, product and service names used in this article are for identification purposes only. All trademarks and registered trademarks are the property of their respective owners.