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Why are So Many Restaurants Going Bankrupt?

Bankruptcies aren’t anything new in the restaurant industry, but they’ve been

increasing at a rapid pace, compared to 10 years ago. This article discusses some reasons why and what these restaurants can do to recover.

Photo Courtesy of FSR Magazine.

In recent months and years, the restaurant industry has seen its share of bankruptcies, including, but not limited to, filings from Bertucci’s, Logan’s Roadhouse, Real Mex Restaurants, fast casual Noon Mediterranean, Romano’s Macaroni Grill, Scotty’s Brewhouse, Ruby’s Diner, and Iron Chef Jose Garces.

In June, Earl Enterprises swooped in and acquired Bertucci’s, a chain of 38 pizza and pasta eateries that debuted in Somerville, Massachusetts, 37 years ago, for $20 million. It had declared chapter 11 in April 2018.

The industry is saturated with restaurants. With the overbuilding of full-service dining eateries, even once successful chain restaurants are grappling with declining traffic.

Many of the chains turning to bankruptcy are struggling with debt and loans. They can’t afford to remodel, and they lack the ability to innovate around their menu.

Restaurant traffic dipped due to an increase in third-party delivery companies and heightened competition from prepared dinners at various supermarkets like Whole Foods Market, Trader Joe’s, and Kroger.

Too many full-service eateries haven’t quickly adapted to delivery, and that’s contributing to the rash of bankruptcies.

Saddled with high rents in retail malls, strip malls, and high traffic locations, restaurant chains are riddled with expensive leases, declining customers, and high costs.

Dave Bennett, CEO of Mirus Restaurant Solutions, predicts that because of the emphasis on delivery and the lessening need for sit-down eateries. He sees a significant 15 percent reduction in restaurant locations in the next few years, which could eliminate 100,000 restaurant sites.

Ruby’s Diner, a 1950s-themed concept based in Newport Beach, California, filed for federal bankruptcy protection on September 5.

If bankrupt restaurant chains want to bounce back, the most effective steps are: One, change the leadership to reinvigorate the brand; two close as many underperforming restaurants as possible; and three, re-evaluate the menu, price points, ingredients, and cost structure.

2019 FSR Magazine.

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