Guzman y Gomez exits US after succumbing to ‘graveyard’ for Australian fast food chains

Lead

Australian fast-food chain Guzman y Gomez (GyG) is shutting down its US operations, a move that analysts say reinforces the difficulties Australian food brands have faced in the American market. The decision, announced to shareholders last Friday, follows years of losses and comes as former employees launch a class action lawsuit over the abrupt closures.

The company currently operates eight restaurants in the Chicago area, all of which have now closed. GyG's US website declares: "All GyG USA restaurants permanently closed."

Coverage Comparison

Coverage of the exit and the legal challenge has focused on two interrelated aspects. One report detailed the company's announcement to investors, including founder Steven Marks's explanation and the expected financial cost. Another report centered on the class action filed by workers, which alleges that staff were terminated without the legally required notice.

Both accounts note that the US market has historically proved challenging for Australian fast-food chains, with previous exits by Crust Pizza and Oporto. The closure is expected to cost GyG up to US$40 million (A$56 million) in one-off costs, according to the company's statement.

The class action, filed in a US federal trial court in Illinois, claims that GyG violated federal and state laws by not providing 60 days' advance written notice of a mass layoff. The lawsuit seeks pay and benefits for up to 60 days for each affected employee, estimated to number more than 500, and requests a trial by jury.

Key Claims

• GyG is closing its eight stores in the Chicago area after determining the US business could no longer justify the required investment, according to founder Steven Marks. "Having spent the last three months in the US, I realised this was going to take significantly more time and capital than we had expected," he said.
• The closures are expected to cost the company up to US$40 million (A$56 million), as reported by The Guardian.
• Analysts have previously raised concerns about GyG's ability to compete with established Mexican-themed chains like Chipotle, as well as numerous Latin American restaurants. The US market has been described as a "graveyard" for Australian fast-food chains, with previous failed attempts by Crust Pizza and Oporto.
• Former employees allege that they first learned of the closures on 21 May via an internal message posted on the company's platform, according to the lawsuit filed by Chicago firm Haseeb Legal. The message reportedly read: "After careful consideration, we have made the difficult decision to exit the US market. This means we will be closing all our restaurants from today."
• The class action claims GyG was required to provide 60 days' advance written notice before conducting a mass layoff, and seeks pay and benefits for up to 60 days for every affected employee.

Perspectives

Company perspective: Founder Steven Marks noted that while he remained confident in the quality of GyG's food and guest experience, the US business was not translating into sales momentum. "This was not translating to an improvement in sales momentum," he said, adding that the investment required was greater than anticipated.

Analyst perspective: RBC Capital Markets analyst Michael Toner called the US exit a positive development, citing the low prospects for success and the drag on the group's earnings. "On current unit economics, we believe the US business had very low prospects of being successful," he said.

Employee perspective: The class action lawsuit, with two named plaintiffs who were promoted from baristas to shift leaders, argues that workers were not given adequate notice or compensation, in violation of federal and state laws. The suit seeks a jury trial and compensation for all affected employees.

Market context: The US market has historically been challenging for Australian fast-food brands. Previous attempts by Crust Pizza and Oporto ended in failure, and analysts have noted the intense competition from established players like Chipotle, as well as the higher portion expectations of American consumers, which led GyG to offer larger burritos in the US.

While GyG is retreating from the US, it continues to expand in other international markets, with growth reported in Singapore and Japan. In Australia, the company operates 237 stores and ranks among the top 10 fast-food chains by store numbers, according to reports.