Freddy’s Frozen Custard Franchisee Struggles Under Mounting Debt and Market Challenges
M&M Custard, a longtime franchise operator of Freddy’s Frozen Custard & Steakburgers, has officially filed for Chapter 11 bankruptcy protection following mounting debt and sustained losses across several of its locations. The Kansas-based company, led by CEO Eric Cole, operates 31 Freddy’s restaurants across Illinois, Indiana, Kansas, Kentucky, Missouri, and Tennessee.
Court filings with the U.S. Bankruptcy Court for the District of Kansas show that M&M Custard reported $5.2 million in assets against $27.7 million in liabilities owed to more than 100 creditors. Despite being one of Freddy’s most established franchisees, the company cited long-term financial strain from underperforming markets, particularly in the Chicago area, as the driving factor behind its financial distress.
Chicago Market Losses Deepen M&M Custard’s Financial Struggles
According to the bankruptcy documents, M&M Custard described its 11 Chicago-area locations as a “toxic asset,” generating negative EBITDA and becoming a major financial drag on the entire portfolio. These stores, which were acquired from Freddy’s corporate division in 2021, failed to gain traction despite multiple marketing pushes and operational improvements.
“The combination of sustained negative EBITDA, limited buyer appetite for underperforming assets, and the increasingly burdensome regulatory and tax environment in Illinois eroded the long-term viability of the market,” the company stated in its filing.
CEO Eric Cole, who founded M&M Custard in 2010, initially expanded aggressively, reaching 42 Freddy’s locations at the brand’s peak. However, market volatility, rising operating costs, and tightening consumer spending ultimately forced the company to shutter several outlets and restructure.
Rapid Expansion Meets Harsh Market Realities
In 2022, M&M Custard had signed an ambitious development agreement to open 13 new Freddy’s locations in the greater Chicago area, including Lake and McHenry counties. At the time, Freddy’s corporate hailed M&M Custard as a “veteran franchise group” fueling the brand’s national expansion.
But by early 2024, the cracks began to show. Increased rent, labor costs, and higher food expenses strained profitability across its Midwest stores. By March 2024, M&M Custard began closing Chicago units to contain losses, signaling deeper financial problems.
While the company’s remaining 31 restaurants continue to generate roughly $48.4 million in annual revenue, the burden of past debts and underperforming assets has proven too heavy to sustain without legal protection. The Chapter 11 filing will allow M&M Custard to reorganize its business while continuing day-to-day operations.
Freddy’s Corporate Response: “An Isolated Situation”
In a statement, Freddy’s Frozen Custard & Steakburgers emphasized that M&M Custard’s financial woes do not reflect the broader health of the brand or its other franchisees.
“This filing is not a reflection of Freddy’s corporate stability or the performance of other franchisees,” the company stated. “It’s an unfortunate and isolated situation. We remain committed to ensuring that guests experience the same high-quality food, friendly service, and consistent dining experience at all Freddy’s locations.”
Freddy’s, founded in 2002 in Wichita, Kansas, has been one of the fastest-growing fast-casual chains in the U.S., boasting 560 locations nationwide as of 2025. The brand reported nearly $988 million in systemwide sales in 2024, a 6.8% increase year-over-year.
Restaurant Industry Faces Broader Financial Pressures
The M&M Custard financial troubles come amid a wave of bankruptcies across the U.S. restaurant industry. Rising labor costs, higher food prices, and declining discretionary spending have hit franchisees particularly hard.
Earlier this year, major operators of Burger King, Pizza Hut, and Tropical Smoothie Café also sought bankruptcy protection, underscoring the broader challenges faced by multi-unit restaurant owners.
Analysts suggest that M&M Custard’s bankruptcy highlights the difficulties of balancing expansion with market sustainability — particularly for brands reliant on regional growth and high fixed costs.
What’s Next for M&M Custard?
Despite filing for Chapter 11, M&M Custard stated that it intends to continue operations and restructure debt, with no immediate plans to close additional restaurants outside of the already shuttered Chicago locations. The company hopes the reorganization will allow it to stabilize operations and protect jobs while working toward financial recovery.
Industry observers note that M&M Custard’s experience could serve as a cautionary tale for franchise operators expanding too rapidly into high-cost markets without sufficient consumer demand.
In Summary:
The M&M Custard financial troubles represent one of the most significant franchise bankruptcies of 2025, reflecting both market-specific challenges and the wider pressures facing restaurant operators nationwide. While the future of its Freddy’s locations remains uncertain, restructuring efforts may offer a path to recovery.
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