The restaurant industry is facing a challenging year as a growing number of chains file for bankruptcy. As of 2024, at least ten notable restaurant chains have sought bankruptcy protection, a reflection of broader economic pressures affecting various sectors. These filings come as consumer spending decreases, labor costs rise, and the financial support from the Covid-19 pandemic phases out, creating a tough environment for many dining establishments.
Rising Bankruptcy Filings
The increase in restaurant bankruptcies is part of a larger trend, with Chapter 11 filings climbing by 49% across all industries this year. High interest rates, inflation, and other economic factors have contributed to the financial strain on businesses, leading to a significant uptick in bankruptcy filings. Notable companies outside the restaurant industry, such as the retailer Express, nursing home chain LaVie Care Centers, and Joann Fabrics and Crafts, have also sought bankruptcy protection.
Recent Restaurant Bankruptcies
August alone saw three well-known restaurant chains file for bankruptcy. Roti, a Mediterranean fast-casual chain, filed for Chapter 11 on August 23. The company, which operates 22 locations, attributed its financial woes to a decline in consumer spending and the strategic placement of its restaurants, many of which are located in downtown business districts. Despite efforts to raise funds and secure new investors, the chain could not overcome the recent downturn in spending.
Another chain, Buca di Beppo, filed for bankruptcy on August 5. The Italian American restaurant chain plans to keep 44 of its locations open during its restructuring efforts. Buca di Beppo’s financial struggles have been linked to rising operational costs and labor challenges, issues that have become increasingly common across the industry.
World of Beer, a tavern chain, also sought bankruptcy protection in early August. The chain cited high interest rates, inflation, and a slow return to pre-pandemic dining habits as reasons for its financial difficulties. The company plans to use the bankruptcy process to restructure and close underperforming locations, reflecting a strategic move to stabilize its operations.
Challenges Facing Other Chains
Several other restaurant chains have faced significant financial difficulties this year. Rubio’s, known for its fish tacos, filed for Chapter 11 in June. The chain was pressured by rising food and utility costs, minimum wage hikes in California, and the shift to hybrid work, which reduced lunchtime traffic. Rubio’s had to close 48 underperforming locations and eventually agreed to a sale to an affiliate of TREW Capital.
Melt Bar & Grilled, a Cleveland-based chain specializing in grilled cheese sandwiches, also filed for bankruptcy in June. The company struggled with vendor and landlord payments and saw its footprint shrink from 14 locations to just four before seeking bankruptcy protection.
Kuma’s Corner, a Midwestern burger chain, filed for bankruptcy in June as well. Known for its metal- and punk-themed menu items, the chain faced challenges similar to those of other eateries in its segment.
Red Lobster, a well-known seafood chain, filed for bankruptcy in May, attributing its financial struggles to a combination of a difficult macroeconomic environment, an underperforming restaurant footprint, and intense competition. The company faced issues with its “endless shrimp” promotion and expensive lease agreements. A new leadership team is planned if the company successfully exits Chapter 11.
Tijuana Flats, a fast-casual Tex-Mex chain, announced its bankruptcy filing in April, along with new ownership and the closure of 11 restaurants. Sticky’s Finger Joint, a chicken-tender chain, also filed for bankruptcy in April, impacted by rising commodity costs, pandemic-related challenges, and legal expenses.
Portland-based Boxer Ramen filed for bankruptcy protection in February and subsequently closed all its locations by late April, marking the end of the chain’s operations after more than a decade.
Outlook for the Industry
The surge in restaurant bankruptcies is indicative of the broader economic challenges facing the industry. With high interest rates and inflation continuing to pressure businesses, more chains could potentially seek bankruptcy protection before the year ends.
This trend underscores the importance of strategic financial management and adaptation to changing market conditions for the survival of restaurant businesses in a post-pandemic world.