KFC Israel Franchisee Seeks Bankruptcy Protection

The Israeli franchisee of the KFC restaurant chain, Smart-Service D&K, has filed a request with the Beersheba District Court to enter insolvency proceedings and have a temporary trustee appointed. The company operates 12 branches and reports debts totaling 50 million shekels, with 37 million shekels owed to its owners, Konstantin Kotov and Andrey Oskolkov. The CEO is Andrey Sukhonos.

The company was established in 2020 as the franchisee for the American chain in the Jewish sector, operating branches in Haifa, Tel Aviv, Givatayim, Petah Tikva, Kfar Saba, Netanya, Ashdod, Kiryat Ekron, Rishon LeZion, and Kiryat Bialik. Despite a 12% increase in revenue to 71 million shekels in 2024, the company's losses surged to 9.4 million shekels, following previous losses of 2.5 million and 1.8 million shekels in prior years. The request attributes the financial downturn to a sharp decline in profitability since the outbreak of the "Swords of Iron" war, citing reduced customer traffic, a severe impact on tourism, and a general consumer slowdown, while expenses continued to rise due to new branch openings.

Further difficulties arose from the broader regional conflict, leading to continued fixed costs like rent even when branches were closed. The company stated that since 2023, its marketing activities have been almost entirely halted, preventing menu innovations and new project development, with management focus shifting solely to operational efficiency. This situation has impacted product quality and customer experience. Despite these challenges, the company conducted a successful pilot for kosher-style conversions and upgraded technological capabilities, with significant investment from its owners.

However, the owners, being Russian residents, have been unable to inject further capital into the company due to sanctions on Russian financial institutions, which impede fund transfers to Israel. While potential investors and buyers showed interest, no deal has been finalized. In the past two months, the company has failed to meet rent payments for several branches, prompting property owners to take legal action, including lease terminations. The company's assets are valued at only 3.3 million shekels, with half held as deposits by landlords who may offset them against the accumulated debt.

In addition to the 37 million shekels owed to its owners, the company faces 1.9 million shekels in potential severance pay to employees, 1.2 million shekels to tax and local authorities, and approximately 9.5 million shekels in other debts, likely to suppliers. A two-month operational plan has been submitted, projecting a surplus by continuing branch operations while excluding loss-making locations. The plan also mentions advances to employees against October salaries, to be offset by National Insurance payments, indicating potential layoffs and an inability to meet employee obligations.