Too many full-service eateries haven’t quickly adapted to delivery, and that’s contributing to the rash of bankruptcies, Tristano says. “It’s not in their DNA to do delivery. They don’t understand packaging and logistics. Their mindset is full service at the table,” he says, pointing to Chili’s as an outlier that has ramped up delivery and boosted revenue.
“We’re in a zero sum game,” Bennett adds. “For every restaurant that opens, we close one,” he says. In this tight restaurant environment where competition is stiff, “If you make a mistake, you can’t recover.”
Saddled with high rents in retail malls, strip malls, and high traffic locations, restaurant chains are riddled with expensive leases, declining customers, and high costs. “The industry is caught. I could almost see it splitting into two industries: retail-focused and convenience, where the food is brought to you,” Bennett says.
Because of the emphasis on delivery and the lessening need for sit-down eateries, Bennett sees a significant 15 percent reduction in restaurant locations in the next few years, which could eliminate 100,000 restaurant sites.
Declaring Chapter 11 for restaurant chains enables them to lessen their debt, restructure leases, and hold off some creditors. Chains look to “eliminate or write down bad decisions,” Bennett says bluntly.
For example, many chains that built restaurants for seating capacity of 300 people and are paying pricey rents are now serving 150 customers a night, and therefore need to restructure leases to stay in business, Bennett says. Several chains have declared bankruptcy two or three times, leading him to say, “It’s not their first rodeo.”
Having reduced their debt, many chains bounce back. Bennett says chains recover from bankruptcy most often due to better “blocking and tackling, going back to their menu, simplifying, and training.” Inevitably success stems from ensuring staff is motivated, customer service improves, and employees are on board with the new operational focus. All that leads to customers returning a second and third time.
One factor that often leads to bankrupt chains turning their fortunes around is a change in CEO and executive leadership, Tristano says. “The new leaders are often more successful players in the game and it allows them to think differently and do new and exciting things that haven’t been done before,” he says.
The new CEO scrutinizes all costs, including advertising, research, and staffing. Yet one mistake that Bennett sees happening repeatedly during bankruptcy is chains don’t cut enough costs, reduce enough locations, and curtail staff. “Too many chains come out of bankruptcy with too much debt,” he says. They need to be ruthless in cutting back expenses.