One Of Dairy Queen's Biggest Rivals Just Went Bankrupt – Here's What Happened

If you're a fan of Dairy Queen fast-food restaurants, you're not alone. Among dining brands, a YouGov survey shows that Dairy Queen has a 76% favorable rating among consumers, the highest among all dining brand options. More than half of people who regularly enjoy ice cream also have a favorable impression of the restaurant.

Because Dairy Queen is known for both its frozen sweet treat options and burgers, it has a wide range of fast-food restaurant competitors, including McDonald's, Wendy's, and Sonic. Another competitor that has a similar menu with frozen dessert treats and entrees is Freddy's Frozen Custard & Steakburgers. Freddy's recently received significant attention for something other than its food and desserts, though, as one of its most successful franchisees – M&M Custard – filed for Chapter 11 bankruptcy.

Within the court filings, the owners of M&M Custard said that opening new Freddy's franchised locations in the Chicago area led to a downturn in the company's revenues and eventually forced the bankruptcy filing. M&M Custard is one of the largest franchisees for Freddy's, as it was operating 42 stores before the problems began with the Chicago stores. In court filings, the franchisee believes it can successfully reorganize its business after eliminating the drag from the Chicago locations. The financial problems for M&M Custard don't directly affect other Freddy's franchisees, and Freddy's itself is not among the several beloved restaurant chains that are facing bankruptcy. The M&M Custard filing only affects the franchisee and does not affect the primary Freddy's brand.

According to court records related to the bankruptcy filing, M&M Custard, which has its headquarters in Overland Park, Kan., reported assets of $5.22 million and liabilities to creditors of $27.66 million, per Newsweek. M&M Custard acquired three Freddy's Frozen Custard & Steakburgers stores in the Chicago market in August 2021 and eventually operated 11 stores in the area. However, the Chicago stores created persistent financial challenges that eventually affected the franchisee's profitability.

Even if M&M Custard's 40-plus stores all closed, which the franchisee is trying to avoid with the reorganization plan, it would affect less than 10% of all of the Freddy's restaurants in the country. Freddy's has more than 550 locations in 36 states that generated roughly $1 billion in 2024 annual revenues. Freddy's is still far less successful than its rival, Dairy Queen, which has more than 4,100 stores in the United States. In 2024, Freddy's ranked 14th in U.S. sales among burger restaurants, according to QSR Magazine, while Dairy Queen ranked fifth.

Both Dairy Queen and Freddy's use franchise models, where independent owners run their own stores under the primary brand. Both brands are owned by larger corporations, giving them financial stability. The global private equity firm Rhône acquired the Freddy's brand from Thompson Street Capital Partners in mid-2025. Successful multinational conglomerate and holding company Berkshire Hathaway Inc., whose chairman is highly respected financial expert Warren Buffett, owns the Dairy Queen brand.

By filing for bankruptcy, M&M Custard is hoping to be among the companies that come roaring back from bankruptcy. The company's plan is to continue operating its 31 non-Chicago stores after reorganizing and restructuring its debts. Those stores are located in six states (Illinois, Indiana, Kansas, Kentucky, Missouri, and Tennessee), but almost half of its remaining restaurants are in Missouri. Court filings show that M&M Custard has closed its 11 Chicago stores and canceled the leases.

Even though the bankruptcy filing is separate from the primary Freddy's brand, it might still affect the brand's profitability. After opening its first Freddy's in Jefferson City, Mo., in 2012, M&M Custard has ranked among Freddy's top five performing franchisees for several years beginning in 2015. Even with the importance of M&M Custard to Freddy's, the company says the bankruptcy filing is an isolated situation that does not indicate issues with its corporate stability.

M&M Custard is not the only large fast-food franchisee to report recent problems. Dairy Queen announced in early 2025 that it pulled franchises from Project Lonestar for 30 stores in Texas, preventing the franchisee from continuing operation after it failed to remodel its stores as required. A Burger King franchisee (Consolidated Burger Holdings) had to file for bankruptcy in Florida in early 2025 because of declining revenue at its 57 stores. Franchisee EYM filed for bankruptcy in July 2024, affecting its 142 Pizza Hut locations in Texas, Wisconsin, and Ohio.