The U.S. restaurant industry is facing an unprecedented storm. According to the Washington Post, the well-known casual restaurant chain TGI Fridays has filed for bankruptcy protection, closing more than 100 stores in the United States over the past year. This event is not isolated, the United States this year, a number of restaurant chains have declared bankruptcy, including Red Lobster Restaurant.
The Current State of the Bankruptcy Wave
TGI Fridays: According to CNN, as one of the representatives of the United States of America’s casual restaurant chain, TGIFridays was founded in 1965 in Manhattan, was a popular meeting place, and was one of the first large restaurant chains to promote the concept of “happy hour”. However, in recent years, its sales in the U.S. market have been declining, and in 2024 it was hit hard, closing more than 100 stores in the U.S. over the past year and filing for Chapter 11 bankruptcy protection on November 2, 2024 (local time). For now, its parent company is affected, but the brand’s 39 directly managed stores will remain open.
Red Lobster: This 56-year-old seafood restaurant chain filed for Chapter 11 bankruptcy protection in May 2024. Red Lobster employs 36,000 people, has annual sales of $2 billion, and buys one-fifth of the lobster tails in the North American market. However, it ended up on the path to bankruptcy due to poor operations, high debt, and poor strategic decisions.
In addition to the two well-known restaurant chains mentioned above, the 2024 list includes Roti, Buca di Beppo, world of beer, rubio’s restaurants, meltbar&grilled, Tijuana flats, sticky’ s finger joint, and others, at least 10 well-known restaurant chains filed for bankruptcy protection.
Analysis of the Causes of the Wave of Bankruptcy
Economic Environment Factors
Inflationary pressure: The United States has been facing the problem of inflation in recent years. Prices have been rising and the cost of living for consumers has increased. This has caused consumers to become more cautious in their spending on food and beverage and reduce the frequency of eating out. For some higher priced chain restaurants, consumer demand has dropped significantly.
Rising Interest Rates: The high interest rate environment has put tremendous pressure on business operations. Chain restaurants need to pay higher interest rates on loans and increased financing costs, which further compresses the profit margins of the business. At the same time, high interest rates also make consumers less willing to spend, which has a negative impact on the demand for the restaurant industry.
Industry Competition Factors
Rise of the fast food industry: With the accelerated pace of life, consumers are increasingly inclined to choose fast and convenient catering options. Fast food chains offer quick service and relatively low prices, attracting a large number of consumers. In contrast, traditional chain restaurants often do not have an advantage in terms of speed and price, and their market share is gradually eaten up by the fast food industry.
Impact of takeaway services: The rise of takeaway platforms has provided consumers with more choices, and consumers can enjoy a variety of food at home. Many restaurants have also joined the takeaway bandwagon. However, for some traditional restaurant chains, setting up and operating a takeaway business requires a huge investment in capital and manpower, which is a huge challenge for them. At the same time, the relatively low profit of takeaway business is also difficult to make up for the loss of dine-in business.
Factors of the Enterprises Themselves
Poor operation and management: Some chain restaurants have problems in operation and management, such as declining quality of food, poor service level and improper marketing strategies. These problems lead to lower consumer satisfaction and damaged reputation, which in turn affects the business of the restaurant. For example, Red Lobster’s “$20 Unlimited” campaign attracted a large number of customers, but led to the company’s losses, and eventually had to raise the campaign charges.
Ineffective cost control: The operating costs of a chain restaurant include purchasing ingredients, labor costs, rent, and many other aspects. If a company fails to control these costs effectively, it will lead to a drop in profits or even losses. For example, some chain restaurants failed to take timely measures to adjust to rising rental and labor costs, and eventually fell into financial difficulties.
In addition to rising costs and changing consumer habits, the Washington Post says some industry observers believe that the struggles of chain restaurants are also the result of generational changes, as bistro-style restaurants have declined in American culture and take-out restaurants are increasingly favored. Eric Gonzalez, a restaurant industry analyst, said that many of the meals at traditional family and casual restaurants can be easily replicated, and customers know it.
In the face of these woes, some restaurant chains are responding by revising their menus, closing unprofitable stores, and seeking bankruptcy protection is one way to do so. Investors who have acquired bankrupt restaurant chains say they believe they can turn around their brands by cutting costs, closing stores and improving efficiency.
The wave of bankruptcies of U.S. restaurant chains is a complex phenomenon with multiple economic, social and cultural dimensions. It has not only affected the restaurant landscape, but also had a profound impact on the job market and consumer habits. In the face of this challenge, the restaurant industry needs to innovate and adapt to find new ways to survive and thrive. As the industry changes, the future of F&B may look very different from what it is today.
