The restaurant industry has exploded over the last decade. However, where very large growth happens, there is also the tendency for a future severe contraction. Such concerns may be coming to be realized as amid growing pressure from major fast food retailers, small and medium sized restaurants may be squeezed out of business.
While the big names in eating out – McDonald’s, Popeye’s, Chick-Fil-A and Olive Garden, to name a few – are all working diligently to get customers through the door at a time when the American eater is staying home more, lesser known restaurants are bearing the brunt of not being able to find new customers.
Names like Bar Louie and American Blue Ribbon Holdings, which owns Village Inn and Bakers Square, both filed for bankruptcy earlier this week, according to Bloomberg. Both cited lower foot traffic in the U.S. as the reason for their downfall.
Michael Halen a senior restaurant analyst at Bloomberg, said: “The business is just over-built, especially casual dining and full-service dining. There are too many restaurants.”
American Blue Ribbon also said that competition, rising labor costs and unprofitable restaurants were all reasons for facilitating its bankruptcy. The company owns and operates 97 restaurants after closing 33 stores prior to filing Chapter 11.
The company’s majority owner, Cannae Holdings, Inc., has agreed to provide a $20 million loan to maintain the company during bankruptcy. Cannae generates about 30% of its revenue from various restaurant companies it is invested in and has said that American Blue Ribbon will focus on strategic options in bankruptcy.
Bar Louie has been opening new locations over the last few years which has grown its top line, but the increase in debt necessary to open new stores has suffocated the company.
Chief Restructuring Officer Howard Meitiner said: “This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the company’s locations proximate to shopping locations and malls.” (source)