As customers withdraw, occasional restaurant bankruptcies are on the rise

When TGI Friday’s Inc. filed for bankruptcy last month, the casual-dining chain blamed declining sales and falling revenues as strained customers pulled back on spending.

The nearly 60-year-old eatery is one of more than a dozen large restaurants or franchisees that filed for court protection from creditors from January to October, according to BankruptcyData. That’s the highest to that date since 2020. There could be more turmoil next year as restaurant prices have skyrocketed due to rising labor costs, supply chain disruptions and higher interest expenses, hurting consumer demand for dining out.

According to data firm Black Box Intelligence, restaurant prices rose about 44% from 2015 to March 2024, compared to a 26% increase for groceries over the same period.

An employee hands out utensils to customers at a restaurant in New York on August 22. Yuki Iwamura/Bloomberg

“It’s really hard for someone to go to a restaurant at the same pace as before,” said Victor Fernandez, vice president of insights at Black Box Intelligence. “This puts a lot of pressure on brands.”

Seafood giant Red Lobster, Italian chain Buca di Beppo, fish taco restaurant Rubio’s Coastal Grill and the owner of burger and pizza chains BurgerFi and Anthony’s Coal Fired Pizza are among those that have tried to rebuild themselves through bankruptcy this year to organize. Bloomberg reported that Hooters of America is also working with lenders and advisers amid declining revenue.

Shares of Dine Brands Global Inc., the parent company of Applebee’s and IHOP, have fallen about 30% since the beginning of the year, while shares of Bloomin’ Brands Inc., which owns Outback Steakhouse, fell to near 2020- A decline in same-store sales in the US hit lows.

But inexpensive promotions and marketing efforts could increase sales and traffic next year. The difficulties are greater in casual restaurants because they rely on lower-income customers and must compete with fast-food chains that use the same tactics.

McDonald’s Corp. For example, plans to launch a value menu in January, with $5 meals and the offer to buy one item and add another for $1. Fast-food chicken chains Wingstop Inc. and Raising Cane’s Restaurants both posted double-digit sales growth this year thanks to influencer marketing efforts and sports game advertising.

To boost growth, TGI launched Friday’s meals for $9.99, sought to strengthen its online presence and partnered with third-party delivery services, according to bankruptcy court filings.

Bloomin’ Brands chain Bonefish Grill is trying to capitalize on the blockbuster musical “Wicked” by offering two $7 martinis inspired by the film. Clever TikTok advertising and influencers helped Brinker International Inc.-owned casual chain Chili’s see same-store sales rise 14% between the second and third quarters of this year, according to Bloomberg Intelligence.

These strategies appear to be working: November was the industry’s third consecutive month of same-store sales growth, according to Black Box Intelligence.

NEW OWNERS

Bankruptcy has allowed some major chains to close underperforming locations and find new owners, betting that fewer stores and new investments can help turn around their brands.

Restaurants also often take advantage of the junk bond market, which accounts for about $17.8 billion of the high-yield universe, according to Bloomberg data. Any problems in the industry could result in losses for at least some bondholders.

Buca di Beppo closed more than a dozen locations before filing for bankruptcy in August. Last month, the Italian restaurant was sold to lender Main Street Capital Corp. sold, an investment firm with total assets of about $5 billion as of June 30, according to court documents. The operator of BurgerFi was also sold to an affiliate of TREW Capital Management last month.

TGI Friday’s is also working to sell its company-owned stores in Chapter 11. A subsidiary of Sugarloaf Hospitality agreed to acquire its locations at Dallas Fort Worth International Airport and a handful of company-owned locations in Maryland for $30.5 million plus the assumption of certain liabilities, attorneys said during a hearing Wednesday.

Red Lobster, the largest restaurant to file for Chapter 11 so far this year, has closed dozens of locations and used bankruptcy to cut ties with its previous owner, Thai Union Group Plc.

The seafood chain was acquired in September by a consortium of investors led by Fortress Investment Group, exiting Chapter 11 restructuring with about 545 locations in the U.S. and Canada. Red Lobster also hired a new management team to lead the company out of bankruptcy and eliminated the costly Ultimate Endless Shrimp promotion.

Morgan McClure, chief executive of Fortress, said restaurants like Red Lobster offer customers a strong niche and an advantage over their competitors, an appeal that justifies the company’s investment.

“It has great positioning,” McClure said. “It’s the main seafood dish in a lot of places.”

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