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.
It depends, on how economical one’s car is and the how many expenses are incurred. But the take for ride sharing is a pretty low margin. Gas, wear & tear on the vehicle, insurance, phone data, etc. all eat into it. Most people don’t realize it, or count it.
Asok begged for his old job back from the PHB after trying the freedom of Uber.
I noticed that most of these examples are national chains known for, at best, mediocre food. I think people expect more from their dining expenses these days.
I go to very few chain places.
Usually mom and pop places. There is a great Chinese place that makes wonderful crab Rangoon.
Local restaurants, with more creative concepts and menus, are packed regularly where I live. national chains like Outback steakhouse and others, not so much. I think people who do have money to spend on eating/entertainiment, have gotten more discerning.
Same here. I’d seriously rather skip a meal than pay for what most of them of them put out.
That’s true in our home, too. We go out to eat maybe twice a month—once for breakfast, once for dinner. We eat better at home, and you control what goes into that meal, plus the portions. Just healthier and tastes better, plus you know it was prepared safely, less chance of food poisoning.
Wally, we would rather cook steak at home. It’s cheaper to get T-bone or New York Strip (or ribeye) on sale at the store than pay premium $$$ for it at a steakhouse.
In hard times the entertainment at the fairs seems to do well.
I needed a few items so stopped at Walmart near me. The celery and carrots could be cheaper had I caught them on sale elsewhere.
This is what I got:
1) 5lb bag of potatoes
2 1 green pepper (on sale for 68 cents - yes have found cheaper)
3) 1 medium-sized jar of Pace Picante (medium heat)
4) 1 bag raw carrots
5) 1 bag celery
5) 1 $1 loaf of bread
Total: $10.19 + 56 cents in tax = $10.75.
Nope, no meat in there but I found two pork loins on sale for about $4 and change each so with onion, that’s going to be about $20 (actually less, subtract the picante) into several day’s worth of food - more like about $17. The picante was going towards ground turkey tacos for a different cooking session.
Three of my grandkids did work,or are now working, as waiters.
They all work at locally owned restaurants with “regulars” that eat there often,
They do quite well as far as the tipping goes.
.
Amen
None were real national players
They were in fact incompetent
Denny’s is insane. How they keep people coming back I don[’t know. At a table of 6, 6 orders will be wrong. The ticket will be added up wrong + or -. I go when my wife goes with her little theater group. The waitresses are nice and don’t get flustered even when they take a wrong order back and get told the replacement still is not right.
Amen
None were real national players
They were in fact incompetent
Amen. The other day I ran into a woman buying Gatorade at the grocery store. She asked me “How many bottles are in a case?”
I said “Well, it used to be 24.” I looked at the “cases” she had put in her cart and said “But, apparently now it’s only 18. They make everything smaller but charge the same. Look at this can of coffee. This size can used to be a pound. Now it’s 12 ounces.”
She said “Yeah, and only those who own homes and/or have families notice it. The younger folks are too stupid to notice.”
As for salad places, if they used bagged veggies, the salad will suck and more than likely give you food poisoning.
As for restaurants in general, the food simply tastes horrible and the places are usually filthy. Plus, I can cook better than most restaurants.
How about cat soup?
I knew it wouldn’t take long to pin 40 years of voting socialist on the millennials. LOL. You guys are so predictable.
I’m sending you a hurt feelings report form!
We cut back after he lost his job. And when we started the new business we cut back again.
Now we might go the second run movies theater every couple of weeks and we skip the eating out.
That is a cut back from around $240 a month in entertainment to $20.
Our experience is pretty typical of our friends.
We are not standing in bread lines but discretionary spending has been cut drastically.
I’m strictly a crab Rangoon and egg roll person.
I no longer go with the family to one of these “chain” restaurants tthe service is terrible. Food is cold, and impossible to get the check when we’re done.
Now, we out rarely now.
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