U.S. restaurants feeling the heat

2 chains file for bankruptcy in crowded environment

Restaurant chains including McDonald’s, Olive Garden and Popeyes are battling to get customers through the door as more Americans choose to eat at home. Meanwhile, a growing number of smaller brands that can’t attract new diners are facing bankruptcy and restructuring.

American Blue Ribbon Holdings LLC, the owner of Village Inn and Bakers Square, and Bar Louie Restaurants, a chain of gastropubs, both filed for bankruptcy Monday. Each cited declining foot traffic in the U.S. as reason for the need to seek Chapter 11 protection.

“The business is just overbuilt, especially casual dining and full-service dining,” said Michael Halen a senior restaurant analyst at Bloomberg Intelligence. “There are too many restaurants.”

In addition to declining store traffic, American Blue Ribbon attributed its restructuring to increased competition, rising labor costs and a growing number of unprofitable restaurant locations, Chief Financial Officer Kurt Schnaubelt said in court papers. The Denverbased company owns and operates 97 restaurants. It closed 33 before the filing.

American Blue Ribbon’s majority owner, Cannae Holdings Inc., has agreed to provide a $20 million bankruptcy loan to maintain the company as a going concern, according to court papers. Las Vegas-based Cannae has investments in restaurants and data companies, with nearly 30% of its revenue coming from its restaurant holdings as of September 2019. Schnaubelt said American Blue Ribbon will explore “strategic options” under bankruptcy and focus on restaurants that remain profitable.

Bar Louie, based in Addison, Texas, said opening new locations over the past few years helped increase sales, but the growth was financed by debt that has restricted the company’s liquidity, according to a declaration from Chief Restructuring Officer Howard Meitiner. Without sufficient cash to fund store refurbishment and equipment maintenance, the brand experience was inconsistent across locations, Meitiner said.

“This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the company’s locations proximate to shopping locations and malls,” Meitiner said.

Of Bar Louie’s 110 locations, 38 have “seen their sales and profits decline at an accelerating pace” since the company underwent a strategic review in 2018. Those 38 stores experienced a same-store sales decline of 10.9% in 2019, and were closed shortly before the bankruptcy filing, Meitiner said. Lenders are providing a loan of as much as $22 million to keep the company operating in bankruptcy. BLH Acquisition Co. is the stalking-horse bidder for the assets of the company, according to court papers.

Other restaurant bankruptcies in the past year include The Krystal Co., Houlihan’s Restaurants Inc., Kona Grill Inc. and Perkins & Marie Callender’s LLC. All four of the chains cited declining customer traffic or increased competition.

“We need to see a correction in the restaurant industry,” Halen said. “We’ve seen a lot in the last few months, and I think this is just the beginning. Once the economy softens, you’ll see this getting worse.”

A spokeswoman for Bar Louie didn’t immediately respond to requests for comment. An American Blue Ribbon spokesman referred to the company’s news release.