AI-generated news stories fill my feed these days, and as a result my inbox is loaded with stories of “iconic” or “well-loved” restaurants filing for bankruptcy, even when said chains are neither iconic or well-loved.
TGI Fridays, however, is definitely an iconic name and, at least at one point, was well-loved. It was a major part of the casual-dining revolution in the 1990s that helped bring the concept of “flare” to the forefront. Those of us who remember those days definitely enjoyed some apps served by obnoxious waitstaff.
Its bankruptcy filing, however, was the culmination of years of issues. And it provides us with a handful of lessons.
The pandemic and its aftermath were not good
Every restaurant chain that has filed for bankruptcy this year, from Tocaya to Red Lobster, has listed the pandemic among its causes. And there is something to that.
As a reminder, much of the full-service sector was all but shut down for much of 2020 and its recovery was strained. The pandemic’s aftermath has been filled with soaring costs and now an inflation-induced consumer cutback.
That’s tough on all kinds of restaurant chains. Fridays is no exception.
It’s tough for full-service chain restaurants
TGI Fridays’ decline, however, was a long time coming. As my colleague Joe Guszkowski pointed out to me on my podcast this week, the chain has been declining since the Great Recession.
Consumers have been shifting away from dining at full-service chain restaurants with the frequency they once did. When they go out to lunch, they have fast-casual chains to choose from that can get them their food more quickly. And many workers are too busy to sit down for a lunch most days.
When they do want a sit-down meal, they still have plenty of choices, thanks to independent restaurants and a still-growing number of chain locations. Less traffic for brands like Fridays.
Too much of a good thing is a bad thing
The other notable issue on chains like Fridays is what we called the “sea of sameness.” The 1990s was loaded with chains that all looked the same: TGI Fridays, Applebee’s, Chili’s and Ruby Tuesday’s, among many others. Several other concepts also tried gunning for the same crowd.
The proliferation of so many chains with similar business models watered down the overall sector. That was fine when demand was growing. But it’s been a challenge for the past 15 years as traffic to such chains has been in decline.
It’s a similar situation to what’s happened with frozen yogurt or fast-casual pizza or name your fad restaurant idea. Not everything needs to be replicated 5 million times.
Evolve the marketing
Alas, we have an exception right now in the form of Chili’s, which generated 14.1% same-store sales growth last quarter, its second straight 14%-plus earnings quarter—which came on top of positive numbers a year ago. Applebee’s, by contrast, did a negative 5.9%. TGI Fridays is in bankruptcy. Ruby Tuesday is a shell of its former self.
Chili’s thrived in the face of this with good, innovative marketing highlighting its value for the money, rather than just cheap prices. But it’s worth noting that good marketing—and some luck—can still win these days.
Fridays, for whatever reason, has been unable to do that sort of thing. The brand has had some strengths it could have relied upon to win over customers, such as its appetizers and its bar scene. Winning over customers in a tough market takes a lot of effort and requires a different sort of thinking.
Watch the debt level
While every restaurant chain that has filed for bankruptcy could list the pandemic as a cause, we can add that just about every restaurant chain that has filed for bankruptcy also had excessive leverage. Fridays was no different.
Debt is a necessary ingredient in the restaurant space because restaurants need a lot of capital to grow. Many also have leased locations, which adds to the leverage.
But owners of brands like TGI Fridays were too aggressive on debt before the pandemic. That left it vulnerable to a situation like the pandemic. Yet even if the pandemic didn’t happen, Fridays’ bankruptcy was probably inevitable because it was also losing customers.
Excessive debt has killed a lot more restaurant chains this year than the pandemic.