Coffee Shops in Crisis? Why Big Brands Are Seeking Judicial Recovery in Brazil

Casa do Pão de Queijo’s recent “call for help” has sent a warning about the direction of the sector in Brazil

The request for judicial recovery of the Cheese Bread House recently moved the market and raised the alarm about the direction of the sector in Brazil. This is not the first major coffee chain that “asks for help” to avoid bankruptcy. In 2023, the South Rock used the same legal instrument with respect to the operations of Starbucks’ businesses in Brazil.

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Although there may be several external and internal factors, the recent bankruptcy filings of Starbucks and Casa do Pão de Queijo can be explained by a combination of factors. Business and trade experts consulted by Earth cite a reduction in customers due to the Covid-19 pandemic, high business costs and lack of adaptation to the delivery model.

“Coffee shops have been hit hard during the pandemic. Before then, people used to go to these places with their notebooks to work, have meetings or even to decompress from the formal work environment. With the strengthening of home offices, bars have been severely affected,” explains Flavia Mardegan, a specialist in sales and corporate restructuring.

Fernando Canutto, partner at Godke Advogados and a specialist in commercial law, believes that, in addition to the forced closure of its stores for a long time and the reduction in customer flow in commercial areas and offices, the products sold in the canteens are not well suited for delivery. Added to this is the fact that the stores are located in high-cost locations.

“There is not much difficulty in defrosting a cheese loaf, putting it in the oven and having, in a few minutes and at a much lower price, the same product that is found in the canteen. The icing on the cake, many canteen furniture are located in high-cost areas, such as shopping malls and shopping centers, where rents are high and contracts are rigid, making renegotiation difficult in times of crisis,” explains Canutto.

Business model

Experts interviewed in the report believe that the coffee shop business model needs to be rethought. With accelerated and poorly planned expansion, many coffee shop chains have adopted aggressive strategies, opening new units without a detailed analysis of the financial viability of each location.

“Many of these locations are expensive or have low customer traffic, resulting in low profitability, highlighting failures in controlling operating costs and efficiently managing inventory, especially of perishable products,” analyzes Fernando Canutto.

Flavia Mardegan believes that the segment must rediscover its audience and think of the place as a meeting point, adding services and products that arouse people’s interest.

“Going to these places can’t just be for a coffee. You need to offer something more, you need to review your value proposition and realign it with the customer’s expectations,” he suggests.

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Understanding Judicial Recovery Requests

The request for recovery of Casa do Pão de Queijo was filed in June at the Court of Commercial Jurisdiction and Arbitration Conflicts of the 4th RAJ, in Campinas. CPQ Brasil S/A and 28 other subsidiaries are involved in the process, all located in airports. The company’s liabilities are estimated at R$ 57.5 million.

SouthRock is in the process of judicial recovery in the operations with Starbucks and Subway. The request for recovery was filed in October 2023, at the 1st Court of Bankruptcy and Judicial Reorganization of the Central Court of the District of São Paulo. The company’s debts are estimated at R$ 1.8 billion.

“In the case of Casa do Pão de Queijo, it was most likely peculiarities in the management of the company that caused the financial crisis. As they themselves justify in their initial petition, the financial problems were triggered by issues related to the negotiation of rents for shops and establishments”, emphasizes Giulia Panhóca, lawyer at Ambiel Advogados and specialist in commercial law.

Source: Terra

Rose

Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.