HopCat parent company files for bankruptcy, restaurants plan to open June 13
The company is undergoing financial restructuring, but founder Mark Sellers says that should have no impact on day-to-day operations
BarFly Ventures LLC, the parent company of popular craft beer bar and restaurant chain HopCat, filed for Chapter 11 bankruptcy Wednesday.
The restaurant group also said it would be reopening on June 13 in accordance with state guidelines. This means dine-in and carryout service at Michigan HopCat locations across the state — including Midtown Detroit and Ann Arbor, as well as Stella's Lounge and Grand Rapids Brewing Co. in Grand Rapids.
"It’s a weird thing when we announce our stores are reopening the same day that we also announced Chapter 11, but it’s kind of an exciting time for us because we’re really excited to be reopening everything," said Mark Sellers, who founded BarFly in 2008 with the opening of HopCat Grand Rapids. He shut down all his restaurants in mid-March once the pandemic hit, resulting in a 100% loss of sales for the past three months.
"Because of the COVID shutdown, we’re so far behind on our loan payment and our rents, we don’t really have a pathway of getting out of that without a Chapter 11 reorganization."
Sellers said the company's financial restructuring should not affect day-to-day business operations. Gift cards and rewards programs for customers still will be honored.
"People think this is a very negative thing but it’s actually a very positive thing for us," Sellers said. "It’s cleaning up our balance sheet and the customer and employees won’t notice any difference in the restaurant."
When a high-profile restaurant group files for bankruptcy during a rare global pandemic — especially one with multiple locations, loyal customers and mostly good press — it may seem like curtains for a business in an already unstable industry.
"Ages ago, when a company would file bankruptcy, you figure they’re done, they go out of business," said Douglas Bernstein, business law development leader at Plunkett Cooney law firm in Bloomfield Hills. "Now, maybe it means they’re out of business, maybe not. There’s less of a stigma."
Bernstein points to leaders of other industries like airlines and auto manufacturers that have filed for bankruptcy but still conduct business as usual with the general public. And they often can emerge stronger, burdened with less debt and a greater ability to generate cash.
"In a Chapter 11 they are able to conduct business in the ordinary course," said Bernstein. "They can’t do anything that’s not their usual business without court approval."
Among the list of Barfly Ventures creditors is a $6.6 million Paycheck Protection Program Loan for COVID-19 relief from First Savings Bank and $1.7 million to Gordon Food Services. Sellers isn't sure how much of the PPP loan he'll have to pay back, if any.
Both Bernstein and Sellers say that this is likely the beginning of a cascade of restaurant bankruptcy filings.
"This won’t be the last bankruptcy, this is going to be ugly," said Bernstein, though many landlords will try to work with their restaurant tenants.
"I can see a wave of bankruptcies in this industry over the next six months," said Sellers. "I think right now (businesses) are trying to do what they can to survive but it’s going to be a rough ride."
Even before the pandemic hit and state-ordered shutdowns followed, the area saw a flurry of high-profile restaurant closings, including Gold Cash Gold, Bistro 82, Craft Work, Fort Street Galley and the GM Renaissance Center's Granite City Brewery.
The virus put the entire industry on its heels, affecting nearly every business negatively, particularly those that couldn't make up sales without carryout service. The announcement that HopCat Royal Oak would not reopen was one of the most high-profile closings since the shutdown started. Nearby Town Tavern would remain closed as would Midtown's New Order Coffee.
Of those that could offer carryout, the percentage of sales that they've been able to recoup has been a fraction of the norm. And what business is eked out is executed with a smaller staff.
Even with the ability to reopen next week, restaurants are likely to continue struggling because, under state reopening guidelines, they can't operate the full capacity they did as recently as March.
"We're working on completely different business model now," says David Ritchie, vice president of operations for Mission Restaurants, which runs Metro Detroit's Jolly Pumpkin restaurants. They reopened three of their restaurants in the Traverse City area last month.
"We've adjusted all of our budgets, we've re-evaluated all of our operating expenses, trying to work with vendors to get favorable terms for all of our bills."
Sellers, for his part, says he will be able to break even or make a profit at all of his restaurants even with 50% capacity, and he's trying to expand outdoor dining space at some locations, like the Detroit HopCat on Woodward.
Sellers said he was in default at several of his restaurants and had been evicted from the Royal Oak HopCat location. After three years there, the company announced on social media last week that HopCat plans to find a new home in that area, and said he already has interest from landlords and developers in Royal Oak.
The BarFly's HopCat bars in Lincoln, Nebraska, and Indianapolis, Indiana, are planning to reopen June 22.
Still, it's a waiting game to see how things will go once the doors open, he said: "Even at that, I don’t know if all the chairs are going to be filled. A lot of people worry about going out."