In July 2006, two of the country’s biggest buffet companies decided to join forces. Buffets Inc., the Minnesota-based owner of Old Country Buffet and HomeTown Buffet, along with the Tahoe Joe’s steakhouse, merged with the South Carolina-based Ryan’s Restaurant Group.
The deal was valued at $876 million, including debt, and created one of the five largest casual dining companies in the U.S., with 675 restaurants in 42 states.
“We expect that the result of our efforts will be a national restaurant chain even better positioned to provide its millions of customers with delicious meals at a great value in a family-oriented environment,” Michael Andrews, who was Buffet Inc.’s CEO, said in a press release announcing the deal.
The actual result was quite the opposite. The buffet giant has been in a long decline since then, one marked by a remarkable string of bankruptcies—four in all, including the one filed this week that appears to be the death knell for most of the chains under the company’s umbrella, plus a fifth involving Furr's, which was purchased out of that filing by the same owners.
While much of the lesson from the decline in Buffets Inc., will focus on consumers shifting away from that type of dining, not to mention both a recession and a pandemic, its real problem was debt. Its decline since then is a case study on the persistence of zombie chains, where buyers take them over, cut costs, close stores and squeeze whatever cash they can from what is left.
Buffets Inc. was founded in 1983 with the opening of Old Country Buffet and it went public just two years later with seven locations—at the time such small companies could do that sort of thing. Those of us who were teenagers in the Midwest at the time marveled at its troughs of unlimited food of all sorts for a single price.
The chain merged with Hometown Buffets, another buffet concept, in 1996. That deal gave the company some 346 restaurants.
It had a similar number of restaurants in 2006 when it made the Ryan’s deal. Ryan’s had been the South’s second-largest buffet concept, after Golden Corral, and the merger would have made Buffets Inc. a national buffet giant with five concepts.
There were problems almost from the get-go. Buffets Inc. underreported losses stemming from the deal and had to restate its financials. The merger also left the company with well over $800 million in debt and widening losses even before the global recession. That debt soared to more than $900 million when it filed its first bankruptcy in 2008.
The company was already closing restaurants—it closed 32 locations in 2007. It closed another 78 the next year.
To be sure, consumers were already shying away from buffet-type concepts, first so they could eat at places like Applebee’s and Chili’s, and then as fast-casual chains began to emerge on the scene. In addition, takeout was already taking hold.
But companies can survive this sort of thing by investing, keeping stores in good condition, operating well and adapting to changing realities. While buffets in general have struggled in the years since, it’s not as if they’ve gone away entirely. Golden Corral, which had done fine until the pandemic hammered its business model, is a perfect example.
Instead, Buffets Inc. turned into a herd of zombies. Low-end investors buy up companies on the cheap. They cut costs, reduce investments and sell off whatever assets they can find. And they collect the cash they generate for as long as possible.
This makes it almost impossible to kill a restaurant chain—which generates a lot of cash and, once it has an established brand, can attract customers for some time. The prevalence of so many restaurant operating companies make low-end zombie investors common.
Buffets Inc. did not eliminate all its debt following the first bankruptcy, the industry struggled coming out of recession and so it ended up declaring Chapter 11 for a second time just three years after emerging from the first one—Chapter 22, as some call it. That one eliminated its remaining debt. And the company closed more locations.
The company appeared to have things going OK in the years after that. It began to remodel a few units and worked on a new menu. But it also kept closing units. By the time the company was sold in 2015 it operated just over 300 locations.
The buyer of the company was Food Management Partners, a Texas-based operating company that had been aggressively acquiring low-end chains for fire-sale prices—it had acquired chains like Don Pablo’s and Coco’s and Carrows. It also acquired the buffet chain Furr’s out of bankruptcy. FMP would operate Furr’s alongside its new buffet concepts.
But FMP had also quickly earned a reputation for aggressive cost cuts and store closures and asset sales. It was one such round of closures that would cause some problems. Buffets Inc.—it was known for a time as Ovation—closed 74 locations. It often moved equipment quickly after closing a unit so it could be sold or put into other restaurants.
The landlord for 16 of those locations filed a lawsuit and won, which prompted the Chapter 33 filing in 2016.
In the years since then, Buffets has continued to close locations. By the end of 2019 it operated just 90 restaurants.
The pandemic, of course, has been terrible on that business model. Golden Corral’s sales plummeted 62% and its two biggest franchisees declared bankruptcy. Souplantation and Sweet Tomatoes declared Chapter 7, essentially shutting the brand down. Sizzler declared Chapter 11.
Buffets LLC, as it is now known, closed all but six of its restaurants in the Tahoe Joe’s steakhouse brand after the pandemic hit. FMP stopped operations last year and the company was then operated by VitaNova Brands. The company filed its Chapter 44 this week—add in the one Furr’s filing before that acquisition and you have five bankruptcies in all.
VitaNova plans to focus on that Tahoe Joe’s concept, and a redesigned Furr’s concept called Furr’s AYCE Marketplace. It plans to open some of those Furr’s locations as it’s able. But the other brands, including Old Country Buffet and Ryan’s, appear to be done for good.
It’s almost ironic, too. In 2007 after the initial Ryan’s deal, Buffets Inc. had put Tahoe Joe’s up for sale. It didn’t get a deal done before that first filing and kept the chain that will remain as only remnant left from that ill-fated combination.