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.
One of my guilty pleasures is to walk up and down the Bowery in Manhattan, seeing all that surplus restaurant equipment from restaurants that didn't make the grade.
Would be restauranters snap that stuff up, do business for six months or so, and then the same equipment is back in the Bowery.
But Obama says the economy is just fine. Hillary will put Bill in charge of the economy because , in her words, he knows how to do this.
3%? That’s terrible.
Think about the article though. What’s the first thing people cut back on when money is tight? Restaurants. Eat at home to save money.
They’re the canary in the coalmine.
My step-dad spent a lifetime in that business. It is BRUTAL! 3% profit margin, employees that won’t work/steal from you, lawsuits, liquor liability, its a freaking mess!
I have noticed that bus boys seem to be disappearing from restaurants and that waiters and waitresses are increasingly busing tables—probably due to rising costs due to Obamacare, rising minimum wages, etc.
I was going to comment but you nailed it succinctly.
Good point. I’ve noticed that as well.
Tough finding workers at all these days for many businesses. Know a guy with a smoothie shop. He went through 40 workers to find one that’d actually work. Many didn’t quit. They’d just not show up at all.
Yep! In the summer of 2007 my stepdad, a restaurant operator said, and I quote: “Jeez this economy is rotten. Do you guys not see how bad things are? Sales are down double digits over the last two quarters at the restaurant!”
Everyone else laughed. They were busy cashing the equity out of their homes for that summer vacation or a boat or some other stupid thing they didn’t need that ended up putting them upside-down.
Buddy of mine is a dentist. Another thing people (folks without dental insurance) cut back on in tough times is dental care. His business has been flat during our wonderful 1% Obama recovery.
If this decline starts ti hit the big national chains like Denny’s, Cracker Barrel, etc. or even start to affect the fast food chains in a big way, then we have signs of major economic trouble.
hillary’s fine.
the economy’s fine. lowest unemployment ever. lowest interest rates ever.
/s
Well, with 94 million people either out of work or under employed, then couple that with the drive to increase the minimum wage to 15 dollars an hour, it is no wonder.
We obviously need to
* raise the minimum wage
* require health care for ALL workers, not just full-time
* require paid parental leave
* raise taxes
While that sounds like a joke, it is literally the solution offered by the left. Those things will increase the number of customers so much that businesses will do better. And it would have happened everywhere it’s been tried except “_insert_excuse_here_” happened at the same time. While the numbers say jobs were lost and businesses closed it “would have been worse” without the changes. So it would have worked everywhere but bad luck made it work nowhere.
To be fair, they also have a solution that does help some businesses
* allow them to hire illegal workers for less money and no benefits
* government pays for all needs of the underpaid illegals and out-of-work legals
It doesn’t help the country but some businesses can do better.
Guys, even eating in now days is expensive. We make a decent living, more than enough to get by. But I have no idea how the average working American with a mortgage and a car payment can go to the store and buy a weeks worth of groceries with a family of four. I just don’t see it.
Add to that list:
Add ten million plus unskilled laborers to the job market and see what that does to the wages.
So We need Trump to Make America Great again by bringing back our companies and U.S. factories from China so that we can produce again instead of just borrowing and building up debt as we are doing under the big eared Obama creep.
Trump said he will reduce taxes and government REGULATIONS ON COMPANIES SO THAT THEY STAY AND come back to the USA and that's a plan that expouses the principles of conservatism (reducing gov regulations and taxes) but the media would have you blind to this fact. ONLY Trump can do it, M.A.G.A!
Buying a few days worth of modest groceries for just me is painful.
Nothing fancy at all.
restaurants, yep. bars. most things entertainment related.
i can make a lot of dishes at home that taste better than what I get at restaurants.
if its not critical/vital spending, it is the first to be pared back.
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