Restaurant Industry Faces Wave of Bankruptcies as Economic Pressures Mount

Boston Market has faced a series of challenges, including mass store closures, unpaid leases, and legal issues over wage violations. The chain has shrunk from about 300 locations down to just 27 since the start of 2023 and is currently undergoing significant restructuring efforts to address its financial problems​ Eat This Not That

Red Lobster filed for Chapter 11 bankruptcy, citing high food and labor costs and significant operating losses, including an $11 million loss tied to their “Ultimate Endless Shrimp” deal. Despite the bankruptcy, the chain plans to keep about 580 of its locations open while it undergoes restructuring​ Eat This Not That

Chapter 11 bankruptcy filings have surged this year, and the restaurant industry has not been spared from this trend. At least 10 restaurant chains, excluding franchisees, have filed for bankruptcy protection in 2024. The list includes notable names such as Red Lobster, Buca di Beppo, and Roti. This rise in bankruptcies reflects a broader increase across various sectors, driven by factors such as reduced consumer spending, rising labor costs, and the expiration of COVID-era government support.

These 10 restaurant chains filed for bankruptcy this year https://t.co/y2s8sPPbYO

— NBC Connecticut (@NBCConnecticut) September 1, 2024

Red Lobster, a well-known seafood chain, filed for bankruptcy protection in May, citing several challenges, including a difficult economic environment and increased competition. The company pointed to a failed “endless shrimp” promotion and an expensive lease-back agreement that strained finances as contributing factors to its financial difficulties. As part of its restructuring plan, Red Lobster’s new investment group has proposed former P.F. Chang’s CEO Damola Adamolekun to lead the company if it successfully exits bankruptcy.

Buca di Beppo, the Italian-American chain, filed for Chapter 11 bankruptcy on August 5. Despite its financial troubles, the company has kept 44 of its locations open and even plans to open another restaurant. Rising costs and labor challenges were cited as key reasons for its financial woes.

Rubio’s Coastal Grill, known for its fish tacos, filed for its second Chapter 11 bankruptcy in June 2024. The chain attributed its financial woes to rising costs, declining customer visits, and the new $20 minimum wage for fast-food workers in California. Rubio’s has closed 48 underperforming restaurants and is looking to restructure its operations under new ownership​Eat This Not That  and Mashed

Roti, a Mediterranean fast-casual chain, filed for bankruptcy protection on August 23. The company faced significant difficulties during the COVID-19 pandemic, particularly because many of its locations were in downtown business districts that saw reduced foot traffic. Despite raising $58 million earlier this year, the company could not overcome the downturn in consumer spending, which ultimately led to its insolvency.

Other restaurant chains, such as World of Beer, Rubio’s, Melt Bar & Grilled, Kuma’s Corner, Tijuana Flats, Sticky’s Finger Joint, and Boxer Ramen, have also filed for bankruptcy this year. Each has faced its own set of challenges, from rising costs and labor shortages to reduced sales and increased competition. Some, like Rubio’s and Tijuana Flats, have managed to find new investors or buyers to help them restructure and potentially emerge from bankruptcy.

The increase in restaurant bankruptcies is part of a broader trend affecting many industries. According to BankruptcyWatch, Chapter 11 filings have climbed 49% this year, with companies across various sectors struggling under the weight of high-interest rates and other economic pressures. This list includes mall retailer Express, nursing home chain LaVie Care Centers, and Joann Fabrics and Crafts.

Fast-casual restaurant chain bankruptcies are piling up in 2024. Roti is the latest- #inflation under #Democrats since 2021 is out of control destroying #America. https://t.co/GfrPnpy6xx

— Joanne (@rushmom22) August 28, 2024

Looking ahead, the restaurant industry may see additional bankruptcy filings as economic conditions remain challenging. Companies like BurgerFi, which owns Anthony’s Coal Fired Pizza & Wings, have already expressed doubts about their ability to continue operations. Others, such as Mod Pizza, have narrowly avoided bankruptcy through last-minute deals.

As the year progresses, it remains to be seen how many more restaurants and businesses will seek bankruptcy protection to weather these tough economic times.

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• Melt Bar & Grilled, a Cleveland-based chain famous for its gourmet grilled cheese sandwiches, filed for bankruptcy due to rising costs of goods and labor. The chain has closed several locations and is attempting to restructure its business to survive the current economic climate​ Eat This Not That andMashed
• Tijuana Flats, a Tex-Mex restaurant chain, also filed for Chapter 11 bankruptcy protection. The chain closed 11 locations and attributed these closures to a detailed analysis of financial performance and market conditions. The company is restructuring under new ownership to stabilize its operations​ Eat This Not That
• Sticky’s Finger Joint, a chicken finger chain, declared Chapter 11 bankruptcy in April 2024. The chain cited several challenges, including legal disputes over naming rights and the rise of food delivery services that impacted walk-in customer traffic. Sticky’s is looking to restructure to stay in business​ Mashed

Key Points:

• Rise in Restaurant Bankruptcies: At least 10 restaurant chains, including Red Lobster and Buca di Beppo, have filed for Chapter 11 bankruptcy protection in 2024.
• Economic Pressures: The increase in bankruptcies is attributed to reduced consumer spending, rising labor costs, and the end of COVID-era government support.
• Notable Bankruptcies: Red Lobster cited a failed promotion and expensive lease agreements, while Roti and Buca di Beppo struggled with pandemic-related impacts and high costs.
• Broader Trend: Chapter 11 filings have surged by 49% across sectors, affecting companies beyond the restaurant industry, such as retailers and healthcare providers.
• Potential for More Filings: Additional restaurant chains may file for bankruptcy as economic challenges persist, with some companies already expressing financial uncertainty.

Lap Fu Ip – Reprinted with permission of Whatfinger News