Bankruptcy attorneys appear to be doing quite well this year, especially if they’re skilled in the restaurant business industry.
Considering 2020 just started three months ago, five restaurant companies with nine chains total are seeking debt protection such as Logan’s Roadhouse. Since November, there have been seven bankruptcies for 13 restaurant chains, which does not include SD Holdings, a franchisee of Sonic Drive-In.
And, it appears more will be on the way. A Fitch Ratings report released Wednesday shows that burger chains Steak n’ Shake and Checkers & Rally’s may file for Chapter 11 bankruptcy. NPC International, a franchisee for Wendy’s and Pizza Hut, is also contemplating is filing for bankruptcy protection.
Fitch stated the reasons the industry is facing the challenges it is isn’t going to be a big surprise. It said the declining sales are the result of increased competition, changes in consumer tastes, increased competition of food delivery choices, the inability to sustain brand relevancy and higher labor costs as the result of higher minimum wages.
Fitch said the companies filing for bankruptcy protection are not the only ones dealing with the effects. Many restaurant chains are having a hard time. For instance, Subway closed eight percent of its stores in the last two years. O’Charleys, Fuddruckers, TGI Fridays and others are closing restaurants and revamping themselves.
Just think what the consequences would be in a recession.
These challenges are a reflection of an environment that susceptible to those with expensive leases, lots of debt or the combination of both. And, there are so many competitors out there. Restaurants are adding locations at a rapid rate that is surpassing population growth – have been every year since the recession ended.
Despite a growing economy, consumers must decide who the winners and losers are going to be.
For instance, Popeye’s Louisiana Kitchen is producing 40 percent same-store sales growth, but Krystal is filing for bankruptcy.
Although there has been a robust economy and a gradual same-restaurant sales growth during 2019, traffic trends are still weak – something that is likely to continue into 2020. Consumer preferences are also changing. Baby boomers don’t eat out as much while Gen Z and millennials eat out more, which means restaurant chains are not as relevant as they used to be.
There is also a change in retail with consumers not shopping as often.
Other factors are also causing issues for companies:
· Labor is about one-third of a company’s costs and higher minimum wages and the demand for workers is increasing wages, which hinders restaurants. 20 states saw a rise in their minimum wage, with 32 states with a minimum wage more than the federal level.
· Lease costs are rising due to the number of restaurant chains looking at the same location. This cost is cutting into their bottom line.
This all means that more restaurants are expected to file for bankruptcy protection.