Red Lobster, Buca di Beppo, Roti, BurgerFi, now TGI Fridays and more: 2024 has been a year full of once-popular casual dining chain bankruptcies, and industry experts point to two main trends that are causing doors to close.

“There’s been a lot of speculation about the heyday of fast-casual, the heyday of casual dining, and all the different restaurant concepts. It really comes down to the specific price-value equation of the brand. What does the guest buy, what does he or she give up?” Cotton Patch Cafe CEO Brandon Coleman (formerly of TGI Fridays, Dave & Buster’s, Macaroni Grill) told Fox News Digital:

“When we talk about the golden age of fast-casual dining being over, there’s actually a certain type of restaurant that most of us grew up with that has been around for 20, 30, 40 years. And many of those chains will be passed on over time, Debtwire managing editor John Bringardner also told Digital. “

Bringardner continued: “Tastes change. And if a chain doesn’t evolve with its customer base, then it’s not uncommon for them to fall by the wayside.”

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More than a dozen restaurant chains have declared Chapter 11 bankruptcy since the beginning of this year at the fastest rate in decades. According to experts, the recovery from the COVID pandemic has led to higher costs (for operators and customers) and affected different eating habits. Analysts at Debtwire also predict that the next brand names could be Hooters or Denny’s.

It will be harder for customers to get their hands on loaded potato skins and $5 happy hours at TGI Fridays’ shrinking locations, and Debtwire predicts Hooters and Denny’s will be the next brands to go out of business. (Getty Images)

“They have a similar level of debt to Fridays. They have a similar structure and suffer from many of the same problems. It’s an old brand that everyone knows, but they took a big hit during the pandemic,” Bringardner said. “They have new competitors and they haven’t revamped the brand to bring people back to restaurants.”

“We ramped up costs for our supply chains and labor, as well as many other things that serve the restaurant. Faced with this, many brands have had to choose different paths,” began Coleman, who left TGI Fridays last November. to explain.

“Some have chosen to absorb the cost in the short term and position themselves better in the long term. Some brands have chosen to innovate around these costs, while other brands have chosen to pass these costs on to the consumer,” he added. “And when you start putting that pressure on the consumer, they’re choosing with their feet, voting on which restaurant to go to based on their perception of the price-value equation.”

Debtwire’s president expanded on this “barbell” topic further, pointing out the intersection of these two indicators.

“First of all, the pandemic has suddenly forced restaurants to take on enormous amounts of debt to stay afloat, especially sit-down restaurants that have lost most or all of their business for months… This is a heavy blow for any business.” Bringardner said.

“But beyond that, the chains you see are chains that never really recovered. Second, there seems to be a particular problem with family restaurants or the casual dining industry, and that’s a result of changing eating habits among Americans.”

Bringardner noted that the type of debt these companies incur are typically bonds, loans and asset-backed securities used to finance growth. Chapter 11 bankruptcy It is a unique tool in the U.S. legal system that gives companies the space they need to restructure their debts and emerge as a profitable business on the other side.

He estimated that Red Lobster is about $1 billion in debt, and TGI Fridays, which declared bankruptcy earlier this month, is more than $300 million in debt.

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“The problem with having this kind of debt is that it’s like having a mortgage on your house. Mortgage payments may be good if you’re still employed, if everyone’s healthy, but… you can suddenly give up on your debt payments and be at risk. Losing your home is the same on a corporate level.”

“This is a very difficult decision for any brand,” Coleman interjected. “Obviously, it has a huge impact on the guests, the team and the shareholders as well. So this is not a decision to be taken lightly in any case.”

“But I think it depends on each brand and what decisions are going to be made to maybe eliminate some of the bad places, to kind of clean up the business. I think that’s what you have to see when choosing bankruptcy. Is there something on the other side?” The CEO went further. “Is there a core concept or brand that can evolve when stripped down from some of the investment decisions of previous years?”

Coleman offered an idea of ​​what might be talked about in a boardroom in bankruptcy: “You’re going to have to challenge every preconceived notion or untouchable belief in that restaurant concept, and you’re going to challenge it to create a great future for that brand. Now, the other thing you’re going to have to do is engage your customer.” It’s about truly understanding what they’re looking for from your brand.”

“Most of the time, in a return situation, we want to stay with our core guest and look at concentric circles and see how we can expand with guests that are similar to our existing guest or very close to our existing guest… This creates momentum This is a sustainable, revitalized offering for some of the brands that are facing challenges “It can be achieved together with cost reductions and new added value to guests in order to create Coleman said.

But there are some companies that continue to move the casual dining needle, according to Coleman and Bringardner. These include Chili’s, chipotleTexas Roadhouse, Wingstop, Cava and Sweetgreen.

Customers seem to be gravitating there quick service options focusing on fresh ingredients and fast turnover. Giving his best advice to other CEOs at failing restaurants, Coleman reminded them that “it’s all about the people.”

“If you truly understand what your guests are looking for, you can create value for them, and that value will result in foot traffic,” said Coleman. “The people who run restaurants on a day-to-day basis are the people and support centers we serve every day. And if you put people first… and you invest in coaching, training, mentoring and making sure they have a good work experience. With a strong quality of life in restaurants, your guests will benefit from this advantage.”

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“This may sound like a chicken-or-egg question: Are these restaurants not meeting expectations, or is the problem that customers are no longer coming through their doors?” Bringardner pointed out.

“But if restaurants could live up to expectations, customers would be there, too.”

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