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.
Many theaters have first shows of the day with prices at $5.25. Definitely less expensive than matinee/seniors/military. With movie theater card, some may have BOGO with a free popcorn. Online deals are out there.
I’m familiar with the Reaves family. Cathy Reaves was Junior’s daughter, she appeared briefly in the show as a child. People are often confused about the location of the headquarters, which are actually in Archdale, NC (not Daytona, FL). The restaurant began in Greensboro, in the late 80’s. Morris Reaves, her husband, as well as her son, are active in managing the privately held business. A good Cookout restaurant is a great thing, equal to Five Guys burgers and much less expensive, but some locations are better than others. The older, drive through only locations can tend to have occasional issues, in my experience.
They found a location where they can build enough outlets to support one of their centralized warehouses, the key to how they expand. This is one company that doesn’t put growth first.
Indeed it’s slightly cost more than McDonalds...20%
It’s single burgers are actually filling whereas inandout you need a double like steaknshake
Inandout shines with shakes and animal fries
Especially animal fries and the lettuce and stuff is super fresh
Cook out has great shakes too
I have seen five guys take out but so far here only storefronts
They are fair enough too
Here in Nashville area we have three old fashioned burger joints
Rotiers near the Parthenon
Browns diner in Hillsboro village area
Busters in Murfreesboro on north broad st
My favorites
I detest with all my guts hipster burgers for 14.99
It’s just bullshit fetish by millennials
I actually just read the article
Most of those have run their course demographics
I'm sure this was sprung suddenly on the employees on the same day they closed.
Can't understand all the hype.
Cogent rant. Spot on.
Thanks.
Volume of business makes up for it, if there is sufficient volume. Grocery stores average only 1 percent.
The real problem is that restaurants are precarious, in a way. They rise and fall on trends.
Also their food cost is 33% of your bill. That’s why they are willing to give you a different entree and break even, but if you don’t pay at all for some reason, they suffer a loss.
People buy restaurants without doing their homework OR they are too starry-eyed to READ reality.
Often it starts with someone in the family who is a fabulous cook and listens to their "Oh! You should start your own restaurant!!!"
In a town of, say, 4000 restaurants HALF close after a year. Official, unpredictable health inspectors close down another group. Not being nasty but half of THOSE close-downs are Chinese, if there are Chinese restaurants. Cleanliness COSTS and the thinking is "Why clean EVERY day? It'll get just as dirty tomorrow."
I was told by a Chinese friendly acquaintance that when eating at a Chinese restaurant one should always sit in the center of the restaurant as sitting by walls one will see the cockroaches climbing up the walls.
Some bribery might keep some places open longer than others, but those bribed officials eventually get their own.
Complaints from folks who get sick from restaurant food ARE listened to. I guess the threat of "suits" suing is huge.
Here that happens if they stop paying their rent. No thank-you-to-this-wonderful-community sign in the window. There’s just a warning not to trespass from the sheriff’s office.
We had a big scandal with corrupt restaurant inspectors at one time. If you didn’t pay, not only did you get a fine, but the New York Times would publish all the details, especially if there were vermin of any kind. Bye bye restaurant.
Now the city is collecting the bribes, because of their enormous expenses and one-party rule and congenital lawlessness. They can fine you for ridiculous things like an ice cube on the kitchen counter. They can always find something wrong.
They used to love showing up at the busiest times, so the restaurants couldn’t close down the kitchen and throw everything away, although some did anyway and sent all the patrons out. But now I think they have stopped doing that. Still, it costs a lot of $$ to keep that “A” in the window.
The Democrats will pour infinite amounts of $$$$ to keep him in office as mayor of our country's largest city.
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