Bob Evan’s, Old Country Buffet, Cosi, Ruby Tuesday, Logan’s Roadhouse: these are just a few of the large restaurant chains that have closed locations and/or filed for bankruptcy protection in 2016 alone. These eateries generally have two factors working in their favor: name recognition and stores in high-traffic areas. So why are they doing so poorly?
Over-saturation, new fast-casual entrants, and customers’ desire to just eat at home have something to do with it, the Wall Street Journal reports, suggesting that the already announced closures are likely just the beginning of what could be a major restaurant industry shakeup.
Having a variety of food options at your disposal is great for hungry consumers, but you eventually get to the point where there aren’t enough people eating out to support all of those restaurants.
Analysts with NPD Group have charted the growth and retraction of this industry, saying that the number of restaurants in the U.S. grew by 7.3% between 2006 and 2014, peaking at more than 638,000. Since then, the trend has reversed, with a slight decline in restaurants to 624,000. Analysts say many of the closed stores come from independent restaurant chains.
The WSJ reports that the closures have often coincided with younger consumers choosing not to eat out. For example, in the past 10 years, customers aged 18 to 35 have scaled back on their visits, making fewer than 50 trips to restaurants each year.
Additionally, these customers have turned to more fast-casual restaurants like Chipotle, Panera, and others. Still, this variety of eatery hasn’t been saved from closures and financial issues.
Boston-based Cosi, which dabbles in sandwiches, salads, and breakfast fare, recently filed for bankruptcy, announcing the closure of 29 locations.
The WSJ suggests that chains like Cosi are now facing the consequences of opening too many stores, too fast in order to take advantage of customers desire for fresher food options.
Another factor that has led to closures includes debt burdens held by the chains like Logan’s Roadhouse and Fox & The Hound and Champs operator Last Call.
According to chapter 11 filings for Last Call, the company had $75 million in first lien debt owed to Anteres Capital. When the company filed for bankruptcy in 2013, it had $117 million in debts.
As part of Logan’s Roadhouse’s bankruptcy filing, the company said it would restructure its business — closing 18 locations — reducing $546 million in debt by $300 million.
Despite the hundreds of restaurants that have closed so far this year, analysts tell the WSJ that more are likely to come, it just might take a little time.
“I think it’s going to be five to 10 years for the shakeout to complete,” Josh Benn, managing director at corporate-finance advisory firm Duff & Phelps Corp., tells the WSJ, suggesting that the rate of closures will slow as landlords and property owners try to reduce unexpected and costly vacancies.
Restaurant Chains Get Burned by Overexpansion, New Rivals [The Wall Street Journal]
by Ashlee Kieler via Consumerist
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