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SouthRock Capital, Operator of Starbucks and Subway in Brazil, Files for Bankruptcy

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Salman Khan
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SouthRock Capital, Operator of Starbucks and Subway in Brazil, Files for Bankruptcy

In the heart of Brazil, where coffee is more than a beverage, it's a cultural touchstone, the familiar green mermaid logo of Starbucks and the yellow and green of Subway have become staples in urban landscapes. Yet, the company that brought these global brands to Brazilian shores, SouthRock Capital, has filed for bankruptcy protection, rattling the nation's food and beverage industry.

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SouthRock Capital's Financial Struggles

With debts estimated at R$1.8 billion, SouthRock Capital is grappling with financial challenges exacerbated by the Covid-19 pandemic, inflation, and persistently high-interest rates. Founded in 2015, the company has been instrumental in expanding international and local brands in Brazil, making its mark on the nation's culinary map by opening the first airport restaurant stores in 2017 and operating Starbucks and TGI Fridays from 2018. Further cementing its position, SouthRock became the franchisor for Subway in Brazil in 2022, making it the largest food and beverage company franchisor in the country.

Yet, the economic ravages of the pandemic, coupled with inflation and high interest rates, have strained SouthRock's finances, prompting the company to file for judicial recovery. The move seeks to shield SouthRock's operations in Brazil and adapt its business model to the current economic reality, a reality marked by widespread difficulties for retailers.

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Restructuring for Survival

The recovery process now underway at SouthRock involves a comprehensive review of operations. Everything from the number of stores and opening schedules to alignments with suppliers and stakeholders, as well as the company's workforce, is under scrutiny. As it navigates these turbulent financial waters, SouthRock's goal is to create the necessary conditions to continue developing and expanding its brands in Brazil.

Interestingly, the bankruptcy protection does not extend to Subway in Brazil, according to a joint note from SouthRock and Subway. This decision was made to protect the brands, employees, suppliers, and businesses that SouthRock operates.

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Assisting SouthRock in its restructuring endeavor is Galeazzi & Associados, a prominent consultancy specializing in company restructuring and judicial recovery processes in Brazil. The firm's expertise will be put to the test as it guides SouthRock through the bankruptcy process.

The Ripple Effect

SouthRock’s bankruptcy filing includes 24 entities, including Starbucks Brasil Comércio de Cafés and Subway Brasil. The inclusion of Starbucks, in particular, raises concerns about the future of the coffee chain's locations in Brazil, especially those at airports. The effects of the filing are immediately felt in Rio Grande do Sul, where SouthRock operates. The uncertainty over the future of Starbucks locations in the region is palpable, with two units already scheduled to open soon.

SouthRock's bankruptcy filing throws into sharp relief the challenging economic climate in Brazil. As SouthRock reviews its operations and makes adjustments to its business model, it remains committed to working closely with its commercial partners to ensure the continued development and expansion of Subway and the other brands it operates in Brazil.

SouthRock’s path to recovery will be a litmus test for the resilience of the food and beverage industry in Brazil, a sector already grappling with the economic repercussions of a global pandemic. As SouthRock strives to create an environment conducive to the growth and success of its brands, its journey will be watched closely by industry peers and customers alike.

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