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 are unbelievably spoiled, that's what.
People don't want to eat at home because SOMEONE has to get into the car, drive to the market, SHOP for the food, drive home, lug the bags upstairs, put the groceries away AND then finally prepare the meal.
Then there are the dishes to do, that is, put them into the dishwasher, put soap in the dishwasher, start the machine...THEN empty the dishwasher AND put the dishes away.
Sigh, just TOO much for a girl to do!
WHY, o WHY do all that when we can just GO OUT and get all that done for us?
Lol. Are we SPOILED or what?
Yeah, we're seeing a bit of that, but mostly must higher prices. We live in an area (Silicon Valley, CA) still flush with people with a lot of disposable funds (especially coming from overseas), so higher prices are just accepted by most.
We've seen prices of $10.99-11.99 from the beginning of this year spike to $13.99-14.99. It's not going to get any better, at least in our area of the country.
...and even if you do make it, Obama says you didn’t do it anyway.
Why bother? Heh heh heh...
But the economy has never been better!
Hillary and Obama have created millions and millions of jobs!
And cheap or free healthcare!
Be right back, Easter Bunny and Santa are knocking at the door.
I can eat steak at home for what a hamburger would cost me at a fast casual restaurant.
That and the service is terrible these days. What’s supposed to be cold is hot and what’s supposed to be hot is lukewarm at best...
These chains hire the dregs of the millennials
America has become a 3rd world country .We have no money , no factories etc. China makes everything. We need Trump mow or we will decline even further into poverty. work to get Trump elected as if your life depended on it because it does.
Work volunteer in Florid and Ohio . Make America great Again!
Well put.
There’s nobody with a job to buy the cars, iPhones, dinners out, etc. if there are no middle class jobs. Those are disappearing thanks to NAFTA / globalism.
Companies though think globally and Trump is their worst nightmare. Every media company (Apple feed, google, Twitter, Yahoo, CBC, NBC, Fox - Murdoch is on the board of an open borders group) will be anti-Trump 24/7.
Hoping Wiki has a useful Leak tonight at 2 a.m....
That’s impossible. Lester Holt, in his first “question” to Trump stated that the Obamaconomy is awesome, perhaps even epic.
Or because we have household where everybody works and they don’t have the time or energy to cook. Honestly home cooking isn’t that normal a thing throughout history. Lots of chunks of the world live mostly on eating out, ancient Rome, modern Hong Kong. Kitchens take a lot of space, kitchen equipment is expensive, and most people aren’t actually good at cooking, it’s not necessarily a bad business to leave to the experts.
Robert Irvine observes the restaurant business isn’t for every one.
Its a 24/7/365 a year business that takes a personal and a financial toll.
Even in good times its tough. You won’t become rich running one and people open one primarily to share their love of good food with other people.
When it works, you feel successful. When it doesn’t, you feel like a failure.
You’ve got to have the strong will to succeed and if you don’t have it, running a restaurant shouldn’t be your principal business career.
“These chains hire the dregs of the millennials”
I knew it wouldn’t take long to pin 40 years of voting socialist on the millennials. LOL. You guys are so predictable.
At the rate jobs are disappearing who are these “working Americans”?
Add in illegal border jumpers - this thing will not end well.
Thanks Obama! (all according to plan)
Not to mention everyone from your mom to your long lost third cousin thinks they have the right to drink and eat all night long and get the “hook up”
People DON'T have to live in expensive urban areas. They can live in the boonies. If they have ANY land they can even grow some vegetables. We did that a bit. That's where I learned to love gardening.
We didn't have a lot of money growing up. We NEVER ate out, not even once in the 21 years I lived at home. We often had beans, rice, vegetable and salad for dinner. There wasn't always MEAT on the table.
For us, "eating out" meant eating Thanksgiving at one uncle's house and Easter at another uncle's house. Christmas was at OUR house. LEFTOVERS!
Now I eat in so I can control what I eat...as I am with Weight Watchers. :o) Such are the ravages of being unbelievably spoiled.
We should thank God salvation is coming with a $15 minimum wage
I hope more Americans figure out that Lester Holt is just another Brian Williams.
When Waffle House goes chapter 11 or 7 then I will know that we are truly into Hard Times. Of course when WF shuts down probably much of the population will already be dumpster diving and working on recipes for tree bark and grass.
I had a brass shop through the 90s. I never got rich but it provided an okay living. When the economy took just the least dip my business totally dried up and I shut it down. That sort of a shop is pure luxury work in that no one has to have it. It’s not like appliance or auto repair. I didn’t lose any money and didn’t owe anybody when I closed it but obviously it wasn’t going to make any more money.
I make a fairly good meatloaf.
The recipe came from a Garfield junior cookbook.
I haven’t made it in a couple of years.
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