Falling Sales in the Restaurant Sector Leads to Surge in Bankruptcy Filings

by San Antonio Attorney

Observers of the restaurant industry were not surprised when Cosí Inc. filed for bankruptcy protection on Sept. 28.  The fast-casual dining chain has suffered losses for quite some time.  Moreover, many food establishments are taking the bankruptcy route nowadays.

About 12 chains had filed for bankruptcy recently: Johnny Carino’s, Logan’s Roadhouse, Black-eyed Pea, Fox & Hound, Bailey’s, Champps, HomeTown Buffet, Old Country Buffet, Zio’s Italian Kitchen, Ryan’s, Quaker Steak & Lube, and Cosí.

Before the ongoing wave of bankruptcies in the industry, restaurants have filed for debt protection each year.  They are capital-intensive establishments in a competitive industry that serve to mercurial consumers.  They frequently borrow money to expand.  And they lease spaces for their restaurants.  Accordingly, when sales decline, bankruptcies usually go off.

However, observers say the recent surge of bankruptcies is somehow atypical, and compares to the chain bankruptcy surge from 2009 to 2010, when many chains sought for debt protection when sales went down.

The ongoing wave of bankruptcies is mostly caused by a decrease in revenues at restaurant chains that is mainly detrimental to companies that are experiencing financial problems.  The companies that sought for bankruptcy lately were already unstable.

Some of the restaurants have filed for bankruptcy in the past.  For example, Buffets LLC, operator of Ryan’s, HomeTown Buffet and Old Country Buffet, has been bankrupt three times.  Many chains have been continually struggling.

Businesses can try to reduce expenses, but ultimately the greatest forecaster of success is increase of sales.  When sales decrease, it is harder to generate income if there are many expenses to cover.

Cosí is a great example because it was never profitable.  It accrued a $300 million deficit.

The company’s efforts to generate financial gain were unsuccessful.  Cosí discontinued giving discounts, which discouraged its customers.

 

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