A huge number of restaurant companies declared bankruptcy over the past year as the pandemic wiped out a huge amount of sales for a large swath of the industry.
But it could have been a lot worse, as early predictions of massive levels of filings never quite came to fruition, due largely to breaks from landlords and lenders and an industry that saw a quicker recovery than many expected.
That said, the past 12 months have been a huge period for corporate restaurant bankruptcies. According to a Restaurant Business tally, 34 restaurant chains or large-scale franchisees sought out bankruptcy protection since the pandemic began a year ago.
That was more than twice the 14 bankruptcy filings from the previous 12 months.
The number of filings over the past year is likely conservative, not capturing some local chains or franchisees that sought out debt protection. Nor does it capture the devastation felt by much of the industry, hammered by shut-downs of dine-in service for much of the past year—an estimated 100,000 restaurants have closed their doors due to the pandemic.
But the increase in filings over the past year reflects an overall increase in corporate bankruptcies during the pandemic.
Corporate bankruptcies hit a 10-year high in 2020, according to S&P Global, led unsurprisingly by consumer discretionary companies such as restaurants and retailers like JC Penney and fitness companies such as 24-Hour Fitness. A September study by Harvard Business School found large corporate bankruptcies soared 200% through August—even as personal and small business filings fell, likely a reflection of differences in how bankruptcy courts are used.
A bankruptcy filing does not necessarily mean the end of a business, and indeed all but two of the filings Restaurant Business tracked was a Chapter 11 declaration—Garden Fresh Restaurants, the owner of Souplantation and Sweet Tomatoes, and the 55-unit Specialty’s Café & Bakery both opted to liquidate.
Some of the franchisees were sold to other companies—notably NPC International, sold in two pieces to Flynn Restaurant Group and to a group of Wendy’s operators.
The vast majority of chains remain operational, if smaller than they were, with most being sold to investors hoping to get a deal on a restaurant company while banking on a post-recessionary recovery.
There were a few very big restaurant company bankruptcies, including NPC, Chuck E. Cheese and California Pizza Kitchen. Some iconic concepts also sought debt protection, including Ruby Tuesday, Sizzler and Friendly’s. Four large franchisees and at least two movie theater-restaurants (Alamo Drafthouse Cinema, Studio Movie Grill) sought debt protection.
For the most part, however, filings weren’t as significant as many expected once the pandemic started—at least they didn’t meet some of the fears many had early in the pandemic. Landlords largely gave breaks early on to struggling restaurants—or the chains simply forced the issue—while lenders were generally reluctant to call loans as long as the company had a good history.
Many larger restaurant chains were also able to find financing or they found ways to cut costs to generate cash flow off of lower sales.
And many companies were unloaded for bargain basement prices without a filing, such as Naf Naf Grill, Corner Bakery and Boston Market. Others were able to pay off debt and avoid that fate, such as Checkers and Steak n Shake. The latter was likely days from having to file before parent company Biglari Holdings opted to pay off that debt.
None of this is to say that the industry is fully out of the woods. Some bills may yet come due and if some companies can’t recover enough to meet those demands, more filings and bargain-basement sales could be on their way.