This story is part one of three.

When Burgerim told franchisees in mid-December that it was considering a bankruptcy filing and hired an insolvency counsel, it was the first time many operators had heard from the company in weeks.

The message featured the name of a person put in charge of the brand, along with an email that didn’t work. Phone calls to company headquarters went unanswered. Voice mailboxes were full. Even employees had no idea what was going on.

But one type of contact to Burgerim did generate a quick response: one from someone interested in opening a franchise.

The inquiry through the company’s website generated a response from a sales rep on New Year’s Eve, 13 days after the company told franchisees it was restructuring and a week after it allegedly told operators that its offices were closed through the holidays. The email got the prospect’s name wrong, starting with “Hello My Dear Wilhelm” before it launched into a sales pitch on Burgerim that included a link to a video made by social media influencer and Kim Kardashian friend known as “Foodgod.”

“The timing has never been better to become a Burgerim franchise owner,” it said.

That Burgerim would be taking franchise sales inquiries at a time when it was supposedly in a state of reorganization and virtually inoperable was not a surprise. That, after all, was what Burgerim was created to do: Sell a lot of people on the business quickly. Everything else didn’t appear to matter.

This story is based on interviews with franchisees, employees, attorneys, franchising experts and reviews of numerous public and private documents. They paint a picture of an aggressive sales organization that convinced more than 1,200 people to each hand over tens of thousands of dollars.

An unprecedented story

Most of these franchisees were inexperienced in restaurants or franchising—teachers, cooks, accountants, police officers, engineers, war veterans and real estate professionals, many of whom drained savings accounts and retirement accounts to pay their fee, all hoping for a piece of the American dream.

They instead received a complex brand built that struggled with some of the most basic steps involved in running a franchise—such as collecting royalty payments—while leaving operators prone to predatory lending schemes, construction cost overruns and costly leases.

But then once the money ran out, Burgerim closed up shop while the company’s president and founder, Oren Loni, left the country.

He left behind a wreckage. Burgerim employees haven’t been paid in months. Franchisees lost their life savings and sometimes their homes and livelihoods.

Those who are left are doing what they can to survive, resulting in something of a franchise free-for-all of changed menus, altered service styles and even rebranding.

“I’ve never seen anything like this since I’ve been involved in franchising,” said Keith Miller, a franchisee advocate who first started examining problems with the brand last year. “I’ve seen systems collapse. I’ve never seen a system that seemingly isn’t set up as an ongoing business model be created and grow this big.”

Uncertain beginnings

Like much of this story, Burgerim’s history is complex and riddled with uncertainties. This much we know: The brand was started in Tel Aviv in 2008, and the name is Hebrew for “many burgers.” The company specializes in small slider-type burgers with numerous options for patties.

The chain soon eyed the U.S. for expansion. In 2012, a company called Burgerim Holdings opened a location in Los Angeles. It ran afoul of the California Franchise Tax Board, however, and in 2014 the trademark for the company was transferred through an intermediary to a new company called Burgerim Group USA. The Los Angeles location closed.

One person was involved heavily in all of these companies: Oren Loni.

Described as unassuming and eager to please, with close-cropped dark hair and piercing blue eyes, Loni has a long history in franchising out of Israel. According to a post on his Tumblr site, he identifies restaurants, buys them and their recipes, and then works “with his strong corporate team” to create a “strong brand and a simplified operation.”

One such brand was Bandora, a shawarma concept. “He currently has a number of successful chains in Israel and his newest chain Bandora has taken the market by storm with its stores packed to capacity with diners who are raving about its unique shawarma which is cooked over hot coals,” his Tumblr post about Burgerim boasts.

A 2017 story in the Israeli publication Haaretz paints a different picture. According to the story, the Bandora franchise shut down in late 2015 after signing up dozens of inexperienced franchisees, including many who were apparently owed refunds that were never paid. The story says Loni “fled” Israel just before courts handed down an order forbidding him from leaving.

One of Loni’s biggest successes in Israel has been Burgerim, which he apparently started franchising there in 2011 before selling it in 2014, according to reports out of that country. But in the U.S., Loni was involved with both of the companies that were to develop Burgerim. He was the director of operations for Burgerim Holdings, and he was the president of Burgerim Group USA, the company that took the brand over.

Several sources within the company said that Loni was Burgerim’s driving force, even as the company shuffled through a succession of as many as five CEOs. But Loni was really good at one thing. “He’s a salesperson,” said Cheryl Robinson, who worked with the company’s franchisees to get financing. “He’s not a businessperson.”

That refrain was repeated over and over by people we spoke with who knew Loni. He would tell you what you wanted to hear, so long as you’d buy a franchise. “He could sell a ketchup popsicle to a woman in a white suit,” one employee said.

No experience necessary

It is almost impossible to comprehend just how successful Burgerim was at selling people on the brand. The company had zero locations in 2015 and just a couple of locations in 2016. But by the time the brand collapsed at the end of 2019, it had signed more than 1,200 franchise agreements. An estimated 200 locations or more are open. As many as 100 have closed, and an uncertain number, perhaps 150, are in various development stages.

“They just lined up for it,” one employee said. “I’ve never seen anything like it.”

Burgerim's explosive growth

Burgerim's sales machine helped it go from just one U.S. location in 2016 to as many as 200 last year, though estimates vary.

Source: Burgerim Franchise Disclosure Document

Burgerim started with good food. It also had a high-end, modern design that was attractive to the hundreds of franchisees who visited one of the locations during the sales process. Loni previously told Franchise Times that the company received 200 to 300 inquiries a day.

The company advertised primarily on Facebook and Instagram. The ads said “NO EXPERIENCE NECESSARY” in all caps and said people needed just $50,000 to open a restaurant. The company had no requirement for net worth or liquidity, at least at first (later, that was increased to $100,000). We spoke with many would-be operators who had little in the bank beyond that franchise fee.

It’s not uncommon for franchises to target less-experienced operators. It is far less common, however, in the complex restaurant industry. Net worth is something different—by paying no attention to net worth or liquidity, Burgerim ended up targeting a lot of operators who didn’t have access to capital to get them through tough times, especially early on.

“Unfortunately, so many franchisees who signed up had no money,” one employee said. “It was a recipe for disaster beyond comprehension.”

And the company used a high-pressure sales strategy, often pushing operators to send in their fees quickly. There was a reason for that: The people talking with the operators received a commission on that fee.

Former employees say that franchise business coaches worked in teams. They received modest salaries plus commissions, ranging from $1,000 for lower-experienced workers to several thousand dollars for a team leader. Employees say the commission alone led to a lot of abuse, as workers focused not on a franchisee’s ability to run restaurants but whether they could hand over a check.

Aggressive sales strategies

Burgerim also provided prospective operators with something clearly meant to assuage any concerns they had about operating a company that just two years earlier had no locations: a money-back guarantee.

Franchisees were allowed to cancel their franchise agreements if they couldn’t find a location within six months, or for other reasons. The cancellation agreements say that the operator will receive their refund in six to nine months, according to documents provided to Restaurant Business.

Many operators we spoke with signed agreements explicitly because they felt it was risk-free. Yet Burgerim’s franchise agreement states that the fee is nonrefundable.

Still, the company did pay out some refunds, employees say, at least early on. Those refund requests were frequent because some of the lowest net-worth operators struggled to find locations. One broker in Los Angeles said that he tossed aside 80% of Burgerim’s lease proposals because they didn’t have enough money in the bank. “You’re just opened up to a huge liability if they’re only putting $10,000 of their own money into it,” the broker said. “No other franchise does that.”

Few franchises also voluntarily pay back franchise fees, either. Jeff Lefler, CEO of FranchiseGrade.com, said that typically only happens if the franchisor decides that the prospect is unqualified, and even then they don’t refund the full amount. “It feels like all they did was create a vehicle of revenue through the franchise fee because they knew they could sell it and to hell with the consequences,” he said.

Multiple operators said they received verbal assurances that they would make profit, even though Burgerim does not provide any earnings claims on its franchise disclosure document, the thick detailing of a franchise’s business offerings such companies are required to give to prospects.

Loni himself routinely told prospective operators they could earn profit margins as high as 23%, while one operator said he was told franchisees frequently paid off their loans within a year. Not all operators say they received such numbers, with some telling us that they were explicitly denied access to any figures.

Combine all of these tactics—an interesting concept with good food, inexperienced operators who often didn’t qualify for other concepts, a money-back guarantee and aggressive sales reps that sometimes ignored franchise regulations—and you get a company that lured franchisees in droves.

For Burgerim to get 1,200 franchise agreements and as many as 200 locations open in just three years of operation would make it one of the most successful early-growth stories in franchising history. To put its growth in perspective: Lefler said the typical franchise doesn’t sell a single unit in its first year of operation.

The agreements helped the company generate $45 million in total revenue between 2016 and 2018. Its growth earned Burgerim the top spot on Restaurant Business’ Future 50 list of emerging chains last year. But that growth masked serious problems.

Burgerim revenue and net income

Burgerim's revenue growth exploded in 2017 but its profits dwindled considerably in 2018.

Source: Burgerim Franchise Disclosure Document

No royalties

The biggest problem, by far, was Burgerim’s failure to collect royalties. The company supposedly charges royalties of 5% of sales and an ad fund contribution of 2%. But the company appears not to have bothered collecting it at all, a remarkably rare case of a franchisor simply not charging franchisees for the right to operate the brand.

It’s important to understand just how important royalties are to the franchise business: It’s their primary revenue stream. That’s especially true for companies like Burgerim that operated zero locations of its own.

What Burgerim did is akin to Comcast taking the installation fee for a customer’s new cable account and then waiving the monthly subscription charge.

We spoke with several franchising experts, none of whom could recall a similar situation. “That’s the first time I’ve ever seen that,” said Rob Branca, a franchising expert and former chair of the Coalition of Franchisee Associations. “That would indicate to me they had no intention of ever operating as a franchise system.”

Most franchise brands will calculate sales on a weekly basis and take the money directly out of the operator’s bank account. At Subway, for instance, if the franchisee doesn’t report sales, the company will estimate its sales for the week and take its royalties anyway, correcting any problems later on.

It’s unclear why Burgerim didn’t collect royalties. But several sources pointed the finger directly at Loni. Various executives instilled plans to collect those payments, knowing the company couldn’t survive for long without them. Loni nixed all of them, sources said.

“The problem was Oren Loni. He didn’t collect the royalty,” said Michel Buchbut, who was installed as chief restructuring officer in December but told Restaurant Business in an interview that he is the CEO. “It was so stupid. How do you not collect the royalty and survive? How do you do that? You’re in the wrong business.”

Once operators believe they can avoid paying royalties, it’s difficult to get them to start. And franchisees say they couldn’t pay them even if they wanted to. They’re losing too much money.

Cost overruns

Many operators say they were given cost estimates for opening that would prove to be too low, which put a number of them in a deep financial hole before they could even get their store up and running. Franchisees were told that buildout would cost $300,000 to $350,000, plus the $50,000 fee, even though the company’s franchise disclosure document say its actual initial investment range was $194,700 to $683,000.

Franchisees borrowed money based on that $350,000. While some operators who used their own architects and construction firms were able to get their restaurants built for less than that amount, many others say struggled with delays and cost overruns.

Ravi Pradhan, who opened a location in November in California, said he was initially told his restaurant would cost $350,000 to open. It ended up costing $550,000 because of construction delays, cost increases and “dark rent” when his lease started but his restaurant sat unopen. Other operators paint similar pictures, saying they frequently had to take out additional personal loans, even mortgaging their homes, to pay the investment. Many believed they would make it up with profits that would surely come once the restaurant was open.

More than 100 franchisees took out loans backed by the Small Business Administration, which requires they personally guarantee the debt. The loans were made by 25-30 different banks of varying sizes.

The company backed many franchisees’ leases, at one point signing a group lease with a large developer that included sites too large, expensive or both. That was another unusual step. Franchisors typically do not back their franchisees’ leases.

Sometimes, the company’s suggestions made no sense at all. One operator in Arizona, for example, said he was initially given a location at a long-vacant mall near Casa Grande, Ariz.

Last year, Burgerim stopped making promised rent payments on Alex Damas’ Florida location. He was evicted just days before he was planning its soft opening, leaving him deep in debt.

“It's a bad situation for everybody,” Damas said.

Struggling operations

Things apparently didn’t get much better for franchisees once their stores finally opened. Inexperienced operators, many with expensive leases and more debt than they’d planned on, ended up with a brand that was overly complex and didn’t generate the sales they expected, because the company did little in the way of marketing.

Burgerim’s primary selling point four years ago was its selection of small burgers with 3-ounce patties for purchase in selections of two or three. The burgers came with numerous types of patties, including lamb, falafel, salmon, chicken, dry-aged beef, Spanish beef and Angus beef.

That attraction also made operations complicated. Michael Sarkisoff, who opted to rebrand his Burgerim in Troy, Mich., said that many of the patties looked too similar.

“The problem was that only a very experienced crew could do that and not mess up,” he said. “You put them on a broiler and have to remember which meat you put where, and what goes with which meat. It’s very time consuming and very easy to mess up.”

Photograph of Michael Sarkisoff by Brad Ziegler

Many franchisees say the difficulty of operations slowed service to a crawl, especially during busy lunch periods, when service would sometimes take a half-hour or longer. “The concept is only good if you have a steady flow in which a customer only comes in every three or four minutes,” Sarkisoff said. “If you get a rush, you’re screwed.”

The large number of burger options also led to a lot of waste, because customers typically stick to beef or chicken and in many locations won’t order things like lamb. That helped drive up food costs. Operators we spoke with estimated they paid 35% to 40% of revenues on food.

Labor challenges might have been even worse than the complicated operations. Franchisees say they were told to hire more people than they needed, with some saying their labor costs were 50% of revenues before they cut staff to make the numbers work better.

Then the company started adding bigger burgers and other items to the menu, which only made things more complex and added to food costs without increasing sales. Some operators say it actually made things worse.

While there are undoubtedly locations that are doing fine, every franchisee or ex-employee we spoke with said the vast majority of restaurants are not profitable. Some locations have opened only to close a few months later.

Franchisees routinely went to company headquarters to complain. At least one left the keys to his restaurant and walked out, saying, “Here are my keys, you do something with it!” Numerous franchisees filed for personal bankruptcy.

Multiple executives and employees offered plans to fix operations to right the ship, but these plans would usually run into opposition from Loni, who dismissed them with a “F--- that!”

“At the end of the day, Oren did what Oren wanted to do,” one employee said. “It was his company.”

And all of this was before the company went dark.

Frozen out

Either by design or by accident, Burgerim operated much like a pyramid scheme. Because it didn’t collect royalties, it relied entirely on the franchise fee to pay for its own operations. And because it had so many units opening, those operations were put under a heavier amount of stress.

In short: Burgerim was built on a house of cards, and that house collapsed last year.

The company burned through cash: Despite generating $45 million in revenue through 2018, it finished that year with just $50,000 in cash on hand. Employees say financial problems started to hit in February of last year.

The company frequently delayed payroll, often waiting until it received a franchise fee to pay workers, employees said. The lack of payment increased turnover at the company’s headquarters—even some of its top executives went weeks or months at a time without getting paid, employees said.

Burgerim started facing claims for unpaid wages in April and ultimately was the subject of 12 such claims last year, according to the California Department of Industrial Relations. (It has been subject to 20 claims total since 2016.)

Burgerim also stopped refunding its franchise fees, even after it sent the operators refund agreements. And that’s when the lawsuits came, such as the one filed in federal court in August by Samir Ibraheem, a California franchisee who paid $90,000 for the right to operate three agreements and says he was owed a refund.

The company’s attorney on numerous actions, Niv Davidovich, withdrew as Burgerim’s attorney on that case earlier this month, citing a relationship with the company that “began to deteriorate” in October, according to legal filings. In short, Burgerim stopped paying its legal bills.

In a hearing on his withdrawal request, Davidovich said Burgerim is facing 40 to 50 different lawsuits. It is also facing 13 complaints that have been filed with the California Department of Business Oversight.

Meanwhile, locations kept opening. But with workers not getting paid, it became increasingly difficult to get trainers to show up.

By December, Burgerim had stopped answering its phones. A message at the company’s headquarters saying it was closed for Thanksgiving remained in place for three weeks, when it was replaced by a generic message and voicemail boxes that were full.

As for Oren Loni, he was gone. Much like he had after Bandora shut down, Loni left the country.

The franchisor shuts down

Exactly where Loni went is something of a mystery. In his legal filings, Davidovich said that Loni resigned as CEO “to move overseas due to outstanding debts.” Michael Berger, Burgerim’s bankruptcy attorney, said Loni was in Israel. So did several others.

Now, many are left wondering how the company could spend so much so fast. Some employees told us that Loni spent a lot of money trying to shore up the franchisee base. He would write checks to struggling franchisees and sometimes even helped them find apartments and paid their rent for a time.

They said the decision not to charge royalties was made with the same intent. Loni wanted operators to make money before making those payments. And he was “overconfident” in his ability to sell more franchises.

Buchbut was critical of the decision not to charge royalties. But, he added, “I cannot call it a Ponzi. … It was not exactly a Ponzi.”

“There’s a lot not right. But we’ve got 280 stores open. You cannot call it a Ponzi when you have 280 stores open.”

He also said there are 150 stores making money. But other employees and franchisees dispute that number. One estimated that 20 to 25 stores are making money. Another said that perhaps 80 stores could “potentially make it” with changes in the brand.

Many believe Loni was planning to sell Burgerim, much like he did in Israel. But as finances took a hit last year, he began making plans. In June, he formed another company, Burgerim Group Inc., in Delaware. And in September, Loni began taking steps to transfer the right to operate the Burgerim franchise to that new entity in California, according to state records. That transfer took place in December.

Burgerim reorganizes

Meanwhile, the company itself is shrouded in more mystery. On Dec. 18, franchisees received a one-page email saying that the company had hired an insolvency attorney in Michael Berger and appointed a “chief restructuring officer” in Michel Buchbut.

Click to enlarge

Even with the announcement, the email address given for Buchbut bounced back, as did every other company email.

And in early January, Burgerim supposedly moved from Encino, Calif., to nearby Calabasas, apparently to save on lease costs. It didn’t tell employees it was moving.

Around that time, Berger told Restaurant Business that the company was likely to file for bankruptcy protection by the end of January.

But soon the company was singing a different tune. In emails and social media comments, Buchbut began pushing back against suggestions of a bankruptcy, and threatened operators with legal action if they considered forming an independent association.

Last week, the company made its first official comment since that December message that Burgerim had reorganized, with Buchbut as CEO. The message said the company was bringing in more office and field staff, and that it plans to meet with operators in the coming weeks. It also created a web portal to communicate with franchisees.

“Right now, we’ve decided not to go into bankruptcy because we strongly believe we can fix the situation,” Buchbut said. The company moved headquarters to cut costs and also reduced its number of employees from 40 to eight, he said.

According to his LinkedIn page, Buchbut’s most recent position was CEO of a company called Best Plastics LLC. In an interview, he said he was once a member of the Israeli secret service.

The name Michel Buchbut also appears to be an alias: Federal securities filings for Best Plastics list his name as Michael Bohbot.

Buchbut said the company’s strategy is to deal with its lawsuits and state complaints. He said it plans to find solutions for operators that are losing money.

“Whoever are the best franchisees, whoever is losing money, we will help them out,” he said. “If not, we will swap them out.”

He said the company isn’t selling new licenses, even though Restaurant Business has seen multiple franchise sales pitches from Burgerim since that December bankruptcy message. “It would be very foolish of me to sell a franchise in that situation,” Buchbut said. “We’re trying to fix the situation, not create a bigger situation, a bigger mess.”

The company said it is working with any new prospects to take over struggling locations. And Buchbut said Burgerim is working to reduce operators’ costs.

When asked how Burgerim is operating, given the lack of revenue from royalties, Buchbut said the company is funded through his own investment and from rebates from vendors, such as Coca-Cola and US Foods.

“Of course,” he said. “How do you think Home Depot is running? You think Home Depot is making money from selling products? No.”

Still, he said, “Our goal is to collect franchisees’ fees. And we’re going to collect it.”

Buchbut also laid part of the blame at the feet of the franchisees who agreed to pay the up-front franchise fee. “If you pay $50,000 to somebody, did anyone put a gun to them? Did someone try putting a gun to them, saying you must pay? No,” he said.

Franchisees struggle on

Still, the monthslong virtual corporate shutdown left franchisees in a state of mass panic. With many losing money and others under construction, operators called anybody they could seeking help—attorneys, consultants, employees.

Many of these calls were increasingly frantic. At least one employee received a death threat from a franchisee angry about the state of the brand.

The overall impact of Burgerim is immense. The company sold franchises in at least 39 states and the District of Columbia, according to its 2019 franchise disclosure document. “This is an almost unimaginable situation,” Miller, the franchisee advocate, said.

A number of franchisees, such as Michael Sarkisoff and Ravi Pradhan, are rebranding. Some are changing menus. Others are simply trying to get by.

Pradhan opened his restaurant on Nov. 18. But the company’s website indicated his location was “opening soon” long after it opened. And once he did open, there was a challenge with the point-of-sale system. Pradhan says he’s unable to correct a $1 pricing mistake on a value meal order. “$1 might not seem like much,” he said. “But if I’m selling 200 to 300 a day, that’s $200 to $300 a day I’m losing. It adds up.”

The company still has its distribution contract with US Foods, but in mid-January, operators started receiving notifications that the distributor would no longer carry certain items.

Buchbut, in an interview, acknowledged the US Foods problem, blaming it on promises made by the previous management. And he said the company reached a new contract with the distributor.

“It was a huge issue,” Buchbut said. “The other management was promising too many things to US Foods.”

US Foods would not comment.

Existing operators and those with stores on the way are simply hopeful the issues will be worked out and that the brand can function properly again.

“Where is the franchise at?” said Michael Pierce, who operates a location in downtown Los Angeles. “Where does it lie at? There are so many things we just don’t know.”

“I knew [Loni] wasn’t the best businessman,” he said. “I didn’t know it would be this bad.”

About this story: The story of Burgerim is based on more than 30 interviews with current and former franchisees, several former employees, contractors, attorneys, consultants and company officials. It is also based on numerous documents, including publicly available records, legal filings and private emails and records. We granted anonymity to franchisees and ex-employees to get a better sense of how a restaurant chain could sell so many franchisees so quickly and then all but disappear.

Part two: Burgerim franchisees pick up the pieces

Part three: As Burgerim grew, protection for franchisees fell short