Bankruptcy and Restaurants—Signs of the Times or Simply Restructuring

In 2018, these 10 restaurants with multiple brands filed for bankruptcy: Papa Gino’s and D’Angelo Grilled Sandwiches, Real Mex Restaurants which includes brands such as El Torito and Chevy’s Fresh Mex, Taylor Gourmet, Noon Mediterranean, Mike Isabella Concepts, Garces Group, Ruby’s Diner, Bertucci’s, and RMH Franchise—Applebee’s second-largest franchisee.

Then, 2019 struck and, despite a menu revamp in June of 2018 and a change in the CEO in August of the same year, Kona Grill declared bankruptcy on April 30. This was followed in hot pursuit by Restaurants Unlimited Inc’s filing on July 7 and Perkins & Marie Callender’s Holding LLC bankruptcy filing, once again, on August 5, the same Monday that iPic Entertainment, Inc, a luxury theater chain, followed suit.

One has to wonder just what’s happening to the restaurant and entertainment industries and if this is a sign of things to come. But, before we look to the future, let’s take a look at the past and just what roads led each of these businesses to the federal bankruptcy court.

Kona Grill

Kona Grill, for all intents and purposes, seemed to be a brand that had made some very good decisions. When business was looking a little rocky and same-store sales showed evident decline, they opted to alter the status quo and made significant changes. These new adaptations included cost saving initiatives, and a menu design that incorporated the popular global cuisine with American grill favorites. Their menu includes dishes such as a Kona Steakhouse Roll that combines filet mignon with yamagobo, a Japanese pickled burdock root, as well as our all-time favorite—the hamburger. Even their drink menu caught on to the latest beverage craze, with offerings such as The Herbalist—a drink containing five fresh herbs along with a dose of gin and St-Germain. They also restored their popular happy hour and expanded the hours.

Since 2017, they have closed over half of their locations. The Wall Street Journal reported on two of the factors that the chain considers responsible for their current financial crisis: expanding too fast and a stock buyback. They are looking to sell their remaining units.

Restaurants Unlimited Inc

This company is the home to 17 brands including Kincaid’s, Palomino, Henry’s Tavern, Manzana, Portland City Grill, and Stanford’s. On the Sunday that Restaurants Unlimited declared bankruptcy, they also closed six of their 35 locations. According to Restaurant Business, they had a mere $150,000 available cash, $39 million in secured debt, and an additional $7.6 million in unsecured debt to vendors.

The reasons they gave the court for their current financial woe was, number one, the increasingly higher minimum wage requirements in places such as Portland—Oregon, Seattle, and San Francisco which cost the company an additional $10.6 million. They tried to tackle the increased labor cost which, in one city, went up to $16 an hour, by increasing menu prices and adding a living wage surcharge to customer’s bills, but found that they were still on the losing end.

The second reason they referred to was the current generational trend away from casual dining. The third reason was expansion—the two restaurants that they opened in Washington, which cost them around $10 million, did not lead to the anticipated projected sales. Since 2016, they have been looking for a buyer.

Perkins & Marie Callender’s. L.L.C.

Perkins & Marie Callender’s Holding has been through this process before. In 2011, the company emerged from a bankruptcy restructured and under control of Wayzata, a private investment firm.

The day before this year’s August 5 filing, the company closed 10 Perkin’s and 19 Marie Callender’s locations. The reasons they cited included minimum wage hikes, the tightening labor market, and a decline in sales in the family dining arena.

iPic Entertainment Inc.

This Boca Raton, Florida-based luxury movie and dining chain filed bankruptcy with the hopes of restructuring its debt and pursuing a sale. iPic has 16 locations in 9 states with plans to open in 4 more.

This company blames their fiscal troubles on several factors. The first is Hollywood’s current movie trend—movies that are geared toward a younger audience. Considering iPic’s ticket cost, which is 2 to 3 times that of a typical movie theater, their target market is, obviously, not your large families. The first quarter of this year saw their sales fall by 21.7 percent. They also cite increasing competition and rising construction costs.

There appears to be a theme amongst these businesses seeking protection under the cover of bankruptcy laws. The reasons include over-capitalization, increasing competition, changing consumer tastes, rising labor and food costs, as well as decreasing customer traffic.

Nation’s Restaurant News reported on statements made by Marcus Jundt, current CEO of Kona Grill Inc, at the annual ICR investment conference. He cited debt, competition, over-expansion, and labor pressures as major hurdles in the restaurant industry. Jundt also noted that Kona Grill’s greatest success was found in the smaller markets such as Boise, Idaho and Omaha, Nebraska. He foresees major competition coming from establishments that promote fun and that those restaurants that want to survive will turn more toward entertainment.

With the emphasis on third-party delivery services and the rising costs involved in both rent and labor, restaurants that fail to incorporate and adapt to changing times by adding delivery services, increasing speed of service, cutting costs, reducing underperforming locations, and creating new operational strategies, may find themselves in similar situations. As Albert Einstein suggests, “The measure of intelligence is the ability to change.”


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