Are we in a restaurant apocalypse? It all depends, probably, on your definition of apocalypse.
It sure seems like it. I put together the morning newsletter for Restaurant Business every weekday. And the one for Monday sure looks ugly: Rubio’s closes 48 restaurants; Red Lobster could close 100 additional restaurants.
Broaden your examination and you get plenty of additional evidence to suggest a serious industry problem: BurgerFi, once one of the hottest chains in the country, is exploring strategic alternatives after defaulting on its loans. Oberweis Dairy, Tijuana Flats and Sticky’s Finger Joint all declared bankruptcy.
Oh, and lest we forget: The entire fast-food sector is about to unleash a year-long value war.
That might qualify as a restaurant apocalypse. But the restaurant business is also competitive. Consumers are cutting back. And in an environment like this one, weaker brands that don’t have the right value equation and financial footing will have problems.
It’s better termed a restaurant recession.
Plenty of chains are doing just fine, like Wingstop, Raising Cane’s and Cava. We still can’t get reservations for quality restaurants in my neck of the woods without weeks’ notice.
The brands that are closing units or filing for bankruptcy have reasons for doing so. Take Red Lobster. Its bankruptcy filing might be the biggest we’ve ever seen in terms of the combination of size and brand awareness.
But the company also shed assets under a former private equity owner and was then run by an Asian shrimp supplier with no history in the restaurant industry that—allegedly—took over its entire breaded shrimp supplier then had the CEO price an all-you-can-eat shrimp deal at an insanely low price over management protests.
Is that an apocalypse? Or just bad management?
Take Tijuana Flats. The fast-casual chain added new menu items in 2021 and 2022 at a time when operations were a bigger concern. Those new menu items needed new equipment and staff time and hurt sales rather than helped them. That’s typically a recipe for trouble.
Rubio's, meanwhile, has had weak sales since 2017, filed for bankruptcy in 2020 and has been closing locations steadily since then.
The industry is clearly dealing with fewer visits. And when consumers visit restaurants less often, they stay away from those brands that aren’t doing what they should be doing.
Consumers are cutting back because prices have increased about 40% since 2019. Diners are looking at their checks and deciding that certain brands simply aren’t worth it. As such, some brands thrive and others do not.
It’s also worth reminding folks that the restaurant industry is still dealing with the aftershocks of the pandemic.
COVID-19, lest folks forget, was devastating for the entire industry, outside a few select sectors. There was the initial shock of a drastic cutback in sales, followed by unexpected surges in demand.
Once restaurant reopened there were supply chain shortages and labor shortages that led to dramatic increases in costs, making the operating environment difficult to fathom. While costs have eased, we are now in a cutback environment because consumers are realizing just how much operators had to increase prices to keep pace with their own costs.
And many brands simply do not have the financial wherewithal to handle this. Thus, we see all these closures and bankruptcies as the restaurant recession we’re in reveals the brands that are having the most problems.