A coffee and cafe company has now filed a painful Chapter 11 bankruptcy due to large financial struggles caused by the Covid pandemic.
The pandemic had a lasting effect on smaller coffee and cafe shops as many have not been able to financially recover such as Cottonwood Coffee, a roastery that offers wholesale distribution of its beans and sells them to consumers nationally.
The company, based in Brookings, S.D., also operates two cafes, with its first location opening in 2006.
“Cottonwood Coffee downtown is the classic coffeehouse, with great natural light, wooden booth seating, high ceilings, and, of course, expertly crafted coffee drinks,” the company shared on its website.
Its second cafe opened in 2008, with the company slowly ramping up its wholesale and online efforts over the years.
“We constantly strive to be experts on our craft,”
” From roasting to brewing and service, we are always looking to improve; never satisfied with good enough,”
“We do not, however, use this pursuit of excellence to be condescending, off-putting or unapproachable,”
“We believe strongly that great coffee should be enjoyed by regular people,” the company shared.
Cottonwood Coffee filed for Chapter 11 bankruptcy on July 2 in the United States Bankruptcy Court for the District of South Dakota.
The company, in the filing, shared that it had $809,000 in total liabilities and between $100,000 and $500,000 in debts.
About $322,000 of its liabilities are secured against its assets, reports The Street.
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An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.
Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.
Supply Source brands include The Safety Zone and Impact Products.
The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.
Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.
Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products
The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.
However, the company’s financial performance deteriorated in subsequent years.
Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.
The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.
In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.
Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.
The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.
The excess inventory forced the debtor to secure additional storage space, which increased storage costs.
These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.
The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.
The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.
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Also Read: This Massive Mall Retailer Is Now Closing In California
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