The parent company of the Rubio’s Coastal Grill fast-casual chain declared bankruptcy Monday, citing declining sales that began in 2017 and accelerated with the pandemic.
The 170-unit chain, which received a $10 million Paycheck Protection Program loan, has $82.3 million in outstanding debt, according to its Chapter 11 bankruptcy filing. It currently operates or franchises restaurants in California, Arizona and Nevada.
In May and June, San Diego, Calif.-based Rubio’s permanently closed 26 restaurants, including all of the chain’s locations in Colorado and Florida. A “small number” of other locations also remain closed, the company said in a statement.
Rubio’s, which was founded in 1983, saw “significant” year-over-year sales growth from 2012 to 2016, according to its filing. But its problems began in 2017 when the company laid off more than 30% of its line cooks because of a new IRS rule requiring employees to have valid social security numbers as part of the Affordable Care Act.
Those employees had an average of 9.5 years of experience with Rubio’s.
“Training the less experienced workers hired to replace them diverted critical resources, including Management’s time,” according to the filing. “New store openings in Northern California and Florida suffered as a result.”
What’s more, the situation forced the chain to reduce store hours because of staffing issues, leading to poor service and increased customer complaints. Same-store sales declined in the second half of 2017 and into 2018, according to the bankruptcy documents.
Pre-pandemic, the chain had worked to improve customer satisfaction scores. But the coronavirus crisis forced the chain to shut its dining rooms, traditionally accounting for 47% of sales, while also investing in operational expenses related to the health and safety of customers and employees.
The chain has attempted to cut costs by closing stores, slashing corporate pay by up to 30%, furloughing 45% of management employees and more than 1,400 restaurant workers, and more.
“Rubio’s entered the year in a strong financial position, which has helped the Company remain flexible in navigating the unprecedented impact of the pandemic,” said Marc Simon, president and CEO of Rubio’s, in a statement. “The agreement with our sponsor and lenders will position the Company to thrive in this constantly evolving market. This plan will strengthen our finances and allow us to continue to serve our loyal guests and drive our business forward.”
Rubio’s joins a growing list of restaurant operators that have declared bankruptcy during the pandemic, including Studio Movie Grill, Sizzler USA, California Pizza Kitchen and NPC International.