In much of America, a night out with the family has often meant a meal at Red Lobster or TGI Friday's. But once-popular restaurant chains now find themselves struggling.
Big chains this year will "declare the most bankruptcies in decades," said The Wall Street Journal. Buca di Beppo, Denny's, Hawkers, Red Lobster, Roti, TGI Friday's and Tijuana Flats are among the battered restaurants. Same-store restaurant sales are down by 3.3% from last year.
There isn't any single reason. "You have the Covid hangover, labor costs," said Jeff Crivello, the president of Trew, a firm specializing in distressed restaurant lending. Some families have "pulled back on dining out," said the Journal. But business decisions have also played a role. "High interest rates have hurt companies that gave priority to growth over profit."
What did the commentators say? Restaurants up and down the spectrum have "struggled to adapt to changing consumer behavior," Alex Wolf said at Bloomberg Law, including a big shift from dine-in to delivery. Inflation has also played a role. "Even fast food brands are deploying value meal deals" to bring customers back, said Wolf. There's an "impending bust that's on the way."
For working-class families, a trip to Red Lobster once meant you were "big time and about to eat well," especially in small towns, said Kristal Dixon at Axios. The disappearance of such restaurants will leave some diners with "fewer opportunities to expand their culinary palates."
Chains like Chipotle and Wingstop are still bringing in customers "in droves," Jonathan Maze said at Restaurant Business. That's a sign the glut of bankruptcies has to do with bad business decision-making. When the industry was growing, chains would compete with each other for real estate, driving up lease prices. That put many restaurants "behind the eight ball from the get-go." Other brands "took on too much debt to fuel their growth," said Maze. Struggling restaurant chains are often "victims of their own overly aggressive growth."
What next? "Experts don't see the headwinds ending anytime soon," said QSR, which covers the restaurant industry. Bankruptcy courts can't force people back to post-Covid business districts to revive the now-disappeared lunchtime crowds. But they can help restaurant chains deal with "burdensome leases" or debt problems. More restaurant operators will have to think in these terms. "Margins are getting thinner," said Christopher Desiderio, a corporate bankruptcy lawyer, and "things are getting more difficult." |