Large number of restaurants filed for bankruptcy during pandemic

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The bottom line

A large number of restaurant businesses have declared bankruptcy in the past year as the pandemic wiped out a huge amount of sales for much of the industry.

But it could have been a lot worse, as early predictions of massive deposit levels never quite materialized, in large part due to break-ups by homeowners and lenders and an industry that has seen a faster recovery. provided that.

That said, the past 12 months have been a huge time for corporate restaurant bankruptcies. According to a tally of restaurant companies, 34 large-scale restaurant chains or franchisees have filed for bankruptcy protection since the pandemic began a year ago.

This was more than double the 14 bankruptcy filings of the previous 12 months.

The number of deposits over the past year is likely conservative, not capturing some local chains or franchisees who were looking for debt protection. It also fails to capture the devastation felt by much of the industry, hammered by food service closings for much of the past year – around 100,000 restaurants have closed due to the pandemic.

But the increase in deposits over the past year reflects an overall increase in business bankruptcies during the pandemic.

Business bankruptcies peaked in 10 years in 2020, according to S&P Global, led unsurprisingly by consumer discretionary companies like restaurants and retailers like JC Penney and fitness companies like 24-Hour Fitness. A September study by Harvard Business School found that large business bankruptcies soared 200% through August, even as personal and small business records declined, likely due to differences in how bankruptcy courts are used.

A bankruptcy filing does not necessarily mean the end of a business, and in fact, all but two of the filings followed by Restaurant Business were a Chapter 11 statement: Garden Fresh Restaurants, the owner of Souplantation and Sweet Tomatoes, and Specialty’s Café & Bakery both chose to liquidate.

Some of the franchisees were sold to other companies, notably NPC International, which was sold in two parts to Flynn Restaurant Group and a group of Wendy’s operators.

The vast majority of chains remain operational, even though they are smaller than they used to be, with most being sold to investors in the hope of securing a deal on a catering business while betting on a post-recovery recovery. recession.

There have been some very big bankruptcies of restaurant companies, including NPC, Chuck E. Cheese, and California Pizza Kitchen. Some iconic concepts were also looking for debt protection, including Ruby Tuesday, Sizzler, and Friendly’s. Four major franchisees and at least two movie theaters (Alamo Drafthouse Cinema, Studio Movie Grill) have requested protection against their debt.

For the most part, however, the deposits were not as large as expected once the pandemic began – at least, they did not address some of the fears many had at the start of the pandemic. Owners largely gave breaks early on to struggling restaurants – or chains simply forced the issue – while lenders were generally reluctant to call for loans as long as the business had a good history.

Many large restaurant chains have also been able to find financing or have found ways to cut costs to generate cash flow through lower sales.

And many companies have been offloaded at bargain prices without filing a case, such as Naf Naf Grill, Corner Bakery and Boston Market. Others were able to repay their debts and avoid this fate, such as Checkers and Steak n Shake. The latter was probably days away from having to deposit before the parent company Biglari Holdings decided to repay this debt.

None of this is to say that the industry is completely out of the woods. Some invoices may still fall due and if some businesses fail to collect enough to meet those demands, more deposits and low-cost sales could be underway.

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