Posted on 10/03/2016 4:08:17 PM PDT by TigerClaws
On October 3, Garden Fresh Restaurant Corp., which owns Souplantation and Sweet Tomatoes, filed for bankruptcy. The company, owned by private-equity firm Sun Capital Partners, said it will close 20 to 30 of its 124 locations and put itself up for sale.
On September 30, Restaurants Acquisitions, the operator of Black-eyed Pea and Dixie House restaurant chains, converted its Chapter 11 filing to Chapter 7 liquidation. The bankruptcy court order noted the company had shuttered its restaurants and management had resigned.
On September 29, Cosi Inc., a fast-casual chain with 1,100 employees filed for bankruptcy. It closed 29 of its 74 company-owned restaurants and laid off 450 people. The 31 independently owned franchise operations continue operating.
Also last week, Logan’s Roadhouse, a casual steakhouse with over 200 locations, closed more than 10 restaurants, on top of the locations it had already closed in August when it filed for Chapter 11 bankruptcy.
Nine restaurant companies representing 14 chains have filed for bankruptcy since December: Garden Fresh Restaurant, Restaurants Acquisitions, Cosi, Logan’s Roadhouse, Fox & Hound, Champps, Bailey’s, Old Country Buffet, HomeTown Buffet, Ryan’s, Johnny Carino’s, Quaker Steak & Lube, and Zio’s Italian Kitchen.
Restaurants are precarious creatures. They lease costly space and have to invest in equipment and furnishings. It’s a competitive environment, with high expenses and little pricing power. To expand, they load up on debts. Some, like Cosi, always lose money. Customers are finicky and fickle. When new competitors come along, or when the economy tightens, customers thin out and creditors begin to fret and turn off the money spigot.
Some of that is normal. The restaurants come along, and old ones die.
“But the current wave of bankruptcies is definitely unusual, and rivals the chain bankruptcy wave of 2009 and 2010, when several chains filed for debt protection after sales fell,” writes Jonathan Maze at Nation’s Restaurant News, adding:
In this case, the wave of bankruptcies is largely due to a decline in sales at restaurant chains that is particularly harmful to companies that are already walking a balance-sheet tightrope. The companies that filed for bankruptcy recently were already weak.
Some are repeat offenders, including Buffets LLC (Old Country Buffet, HomeTown Buffet, and Ryan’s) which is now mired in its third bankruptcy. Many of them, battered by declining sales and rising expenses, have been losing money for a long time. But now things are coming to a head.
Restaurant bonds moved into fourth place early this year in Standard & Poor’s Distress Ratio, behind brick-and-mortar retailers and the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.”
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Other restaurants are trying to hang on by cutting costs and shrinking their footprint, which entails more sales declines, and thus continues the downward spiral.
In August, casual-dining operator Ruby Tuesday announced that – after “a rigorous unit-level analysis of sales, cash flows, and other key performance metrics, as well as site location, market positioning and lease status” – it would sell its headquarters and close 15% of its 624 or so company-owned restaurants by September.
Clinton Coleman, interim CEO of Rave Restaurant Group, which operates Pie Five Pizza Co. and the Pizza Inn buffet brand, put it this way on September 23, after reporting that same-store sales had tumbled in Q4 and that losses had ballooned: “Sales trends in the fourth quarter were very challenging for the Pie Five system, as was the case in much of the fast-casual segment.”
The restaurant industry is not a sideshow. About 14 million people work in it, according to the National Restaurant Association. With $710 billion in annual sales, it’s an important part of consumer spending and accounts for about 4% of GDP. If the industry is having problems, it’s a red flag for the overall economy.
Its difficulties are not limited to just a few beat-up restaurant chains. The National Restaurant Association reported on Friday that its Restaurant Performance Index (RPI) for August fell 1% to 99.6 and is now in contraction mode (below 100 = contraction). It was the worst reading since February 2013.
The RPI’s post-Financial Crisis peak was in the spring and summer 2015, when it dabbled with 103. Its all-time peak, going back to its inception in 2003, was 103.4 in 2004. Its all-time low of 96.5 occurred during the depth of the Financial Crisis.
The index consists of two components:
The Current Situation Index, which tracks restaurant operators’ reports on same-store sales, customer traffic, hiring, and capital expenditures And the Expectations Index which tracks restaurant operators’ six-month outlook, including on the overall economy – more on that in a moment.
The Current Situation Index fell 1.9% in August to 98.6, the lowest since February 2013. Three of its four indicators declined: same-store sales, customer traffic, and labor.
Only 30% of the restaurant operators reported a year-over-year increase in same-store sales. That’s down from 71% in February.
But 53% reported a year-over-year decline in same-store sales. This metric has been deteriorating for months. In February, March, and April, between 19% and 38% of the operators had reported lower same-store sales. Then it ticked up: 42% in May, 43% in June, 45% in July, then jumping to 53% in August.
Operators also reported a net decline in customer traffic: while 21% reported a year-over-year increase, 59% reported a year-over-year decline. August was the fourth months in a row of year-over-year net declines in customer traffic.
And optimism is beginning to wane. The Expectation Index edged down to 100.6: “While the Expectations component of the index remains in expansion territory, it too has trended downward in the past several months.”
And operators are turning gloomy about the overall economy: only 17% expect the economy to improve over the next six months, but 29% expect conditions to worsen:
This represented the 10th consecutive month in which restaurant operators had a net negative outlook for the economy.
Restaurant operators as a group are an optimistic bunch – they have to be, or else they wouldn’t do it. But they also have daily intense contacts with consumers and are thus a leading indicator of the consumer-based economy.
In the beaten-up brick-and-mortar end of the retail industry, the meme has been that Millennials aren’t buying enough goods but like spending money on “experiences” – such as eating out. If that’s true, and not just an excuse by faltering retailers, it appears Millennials are not doing enough of that either anymore. Either way, the restaurant industry has been giving off increasingly loud warning signs about the overall economy, and the state of the consumer.
We have around here two Grocery Outlets that are known commonly as the poor peoples’ groceries. They claim they post their cost on the shelves and the price is 10% more. Most things are as cheap at WalMart or cheaper and with better brands. However certain things like eggs are a third to half of what they are at WM and elsewhere and fresher. Produce is better and cheaper though more limited. My wife always refused to go in the place because poor folks shopped there. I reminded her that those poor folks presented better appearance than the WM people and were more polite to each other. She finally came in with me today and will be returning for those “some things.”
I can count the establishments I frequent on one hand.
Yeah, not everything at a Walmart is “cheaper”.
If I can, I try to stock up on loss-leaders in flyers, when appropriate.
Example: one local chain had Campbell’s Chunky Soup (big cans) for 99 cents. They’re $1.68 at Walmart all the time. I made a few trips to stores near each other - got 20 cans.
” and impossible to get the check when we’re done.”
I eat out several times a week with a friend (Two
grannies :-)——)
When they serve the meal I ask for the check right away since we will not be ordering anything else.
We pay cash,have the correct amount,including tip,and leave when we are ready to leave.
.
...and without the clueless waitress who, while staring at your empty glass, interrupts your conversation to ask, “Would you like more drink?”
SOUPLANTATION, I am not surprised at all!!!!!! I got so terribly sick the last two times I ate there. Nobody that works there even speaks English and who knows what is going on in the back kitchen/prep area.
I almost passed out, my neighbor wanted to take me to Emergency because I vomited everything up and couldn’t even get off my bed.
I used to eat there all of the time many many years ago but the quality of the food is very questionable now days. So sad! It is all just sodium and grease any more.
Kiosks are quickly taking the place of waiters/waitresses.
I just figured out the food cost per person for the year.
2.75/ plate isn’t too bad for us. Two growing kids, and alot of organic stuff that I cant grow in my location.
I could probably get it a bit lower, but I enjoy eating.
Here in WA we have a measure on the ballot which will raise the minimum wage in increments to $11.00 (2017), $11.50 (2018), $12.00 (2019) and $13.50 (2020), plus guarantee employees paid time off for family care.
It is being promoted in TV ads by stating that if wages are increased, then workers will have more money to spend which will lead to greater spending, greater employment, greater prosperity. Proponents naturally say nothing about increasing costs, higher prices, and decreasing profits (as if that matters). However, this is WA so watch for it to pass.
Here is anot issue that I have been trying to figure out.
Recent same store sales reports for chain restaurants show negative YOY growth. This is happening despite decent growth in restaurant retail sales (5.8% YOY vs 1.9% for all retail) and consumer spending (5.7% vs 3.6% for all consumer spending). Either everyone is eating at non-chain restaurants or there are too many restaurants opening.
Gosh, how could these guys be failing? After all, Obama has tried to help with his mandatory insurance plan and incentivizing workers by making the mandatory wage much higher.
I think it is due to rapidly rising costs.
Higher sales percentage is lower than percentage rise in food, labor, utility cost, rent.
Food cost alone is up about 10-15% in my area.
I live in Sarasota, FL. It’s currently the off-season (vs. snowbird season) but, still, restaurants and bars are uncommonly empty. If the snowbird season is weak, there will be mass business failures here.
And I always thought it was transportation! (Rail/trucks/ocean cargo shipping)
But maybe that’s because I’m a former trucker.
Out here the Grocery Outlet is known (with affection) as the Groce Out.
You can find some interesting stuff, some items about to expire, some the product of a failed marketing campaign. Shop often and keep an eye out, you can get some good things.
Someone tipped me off that after the 2014 6.0 earthquake in Napa, the "ruined" inventory of many wineries made its way to ... the Grocery Outlet. Restaurants shop there for cheap-but-good wine.
I am just talking sales, not profits, so food costs would not come into play. But wholeslae foods costs are actually down about 4% year-over-year. Things like eggs are down considerably (avian influenza affected supply last year, pushing up prices). Some dairy products have seen big declines.
Who can afford to eat out much these days? For a family of 4 or more, even a trip to Mickey D’s is expensive.
The high cost of food (it’s expensive to eat in these days also, at least if you want a little meat on the table) plus the killer cost of Obolacare are causing the profit margins to be cut to the bone and prices to be raised. You used to be able to take a family to one of the buffet places on the bankruptcy list and let the kids stuff themselves for less than $10 a person, but not any more.
I made a copy of your recipe on Microsoft Word and added “cookery” as one of the keywords for this thread.
when you're watching your pennies, eating out makes no sense...
eating out is still special to us...
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