Sign of the times: Restaurants going bankrupt
Posted
Jul 29 2008, 08:04 PM
by
Anthony Mirhaydari
Rating:
Confirming a trend we discussed last week, the corporate parent of Bennigan's and Steak & Ale restaurants filed for Chapter 7 bankruptcy protection as consumers continue to shy away from dining establishments in favor of home-cooked meals.
The closures affect only 0.5% of the U.S. bar-and-grill sector -- but they're a warning of tough times ahead for the $43 billion casual dining industry.
The rapid plunge into oblivion shocked patron Donna Wimes, who noted that "the food was good; they always seemed to generate a crowd." Others are reminiscing about Bennigan's deep-fried mozzarella sticks, while also noting that locations "looked full" anytime they passed by.
But of course, the financial health of a restaurant is determined by much more than customer traffic. In early June, the Wall Street Journal reported the company was in talks with its lenders, GE Capital Solutions, "in an effort to stave off a possible bankruptcy filing." Unfortunately, a toxic combination of rising food and labor costs, declining pricing power, and massive leverage continued, ultimately leading to the demise of the popular restaurants.
The restaurants are owned, through a subsidiary, by the Metromedia Restaurant Group, part of the Metromedia conglomerate founded by 93-year-old billionaire John Kluge. While independently owned franchise locations remain open -- representing roughly 50% of the total footprint -- some 300 company-owned locations across the country have been permanently shuttered. Any assets of value will be liquidated to settle outstanding debts. The fate of the brands, and the franchised locations, remains uncertain.
(Disclosure: I don’t own shares in any of the companies mentioned)
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Casual restaurants burned by inflation