The coffee industry in the United States is facing significant financial challenges, with several companies filing for Chapter 11 bankruptcy protection in recent months, each one of them beloved in their communities. The escalating number of Chapter 11 and other types of bankruptcy filings highlights the difficulties coffee roasters, cafes, and specialty coffee brands face in a post-pandemic market. According to the website BankruptcyWatch.com, Chapter 11 filings are up by 43% from 2023.
One of the latest casualties is Ink! Coffee, a Colorado-based company that filed for Chapter 11 bankruptcy on June 20, 2024, which was a strategically-chosen date: one day before the CARES Act liability allowance sunsets under Subchapter V of the United States Bankruptcy Code. Subchapter V is a provision which makes it possible for the business to remain in control during organization, and for the duration of the CARES Act ruling the limit for liabilities was raised from $2.75 million to $7.5 million.
Another prominent case is Frinj Coffee, a California-based company that filed for Chapter 11 bankruptcy in January 2024. The Santa Barbara Independent reported that Frinj Coffee claimed "about $215,000 in assets while listing more than $1.8 million in liabilities." The company's founder, Jay Ruskey, described the move as a "strategic semi-pause" to address financial matters. The business is being sued by multiple parties, including head roaster and investor Paige Gesualdo, who claims she was misled by Ruskey and other executives on a number of fronts. This messy legal situation is common when companies hit troubled waters.
The challenges are not limited to smaller, specialty coffee brands. Even established chains are feeling the pressure. For instance, Cottonwood Coffee, a South Dakota-based roastery and café chain, filed for Chapter 11 bankruptcy on July 2, 2024, reporting $809,000 in total liabilities.
There are countless factors which contribute to business owners taking the refuge of a court-protected restructure, but the coffeehouse industry has faced several key challenges in recent years. Economic uncertainty and inflation, the lingering effects of the COVID-19 pandemic, and rising interest rates come together to create a stranglehold. Add that most coffee houses run on very thin margins (if profitable, it is rare to see an independent café and roasting company making 10% net profit) and are often either self-funded or over-leveraged and without reserves, and the growing trend makes sense.
Business contracts and expands. The past 18 months or so have seen a contraction throughout the industry from farm to café. Hopefully there will be a turning point soon for this current round because the psychological and physical toll is high on the innovators and the doers who risk everything to serve coffee they believe in to customers they care about.