Few industries have been hit harder by the coronavirus pandemic than the restaurant business,
with casual dining chains especially feeling the pain. Simply put, restaurants with limited
capacity and no delivery options have been left scrambling. Here are the ones that may
close in the near future.
Like nearly every other restaurant chain in the United States, Ruby Tuesday has been hurting
during the pandemic. But it can't point to the incredibly unusual circumstances of 2020
as the only cause of its demise. The truth is, its fortunes have been trending downward
for a while now. Ten years ago, Ruby Tuesday had nearly 850 locations. But when it was
purchased by NRD Capital in 2017, it had roughly half that. And they've still been closing
restaurants ever since. As of 2020, their current total sits between 270 and 300.
If anything, the pandemic has only sped up Ruby Tuesday's decline. About 150 locations
have closed at least temporarily, and the final number of permanent closures is still
to be determined. This all led to the company filing for bankruptcy in October. Although
it will still be in operation during this time, Ruby Tuesday likely will not fully bounce
back. As Aziz Hashim, the founder and managing partner of NRD Capital, put it,
"I don't think it goes back to 100 percent in the near-term. The ability to pay rent
at full capacity remains very doubtful."
We may all soon have to start looking for a new favorite pancake joint. After more than
60 years in business, IHOP is facing a troubling future. Many chain restaurants have struggled
this year, with IHOP and the rest of the breakfast segment haveing been hit particularly hard.
The takeout and delivery options that have helped keep other eateries afloat during the
pandemic have simply not caught on in this area of the market.
In August 2020, a report published by S&P Global Market Intelligence estimated that
the company had an 11.3 percent chance of defaulting on its loans. And things haven't
gotten better since then. In October, IHOP's parent company, Dine Brands Global, announced
that the breakfast chain would be closing up to 99 locations over the next six months.
This all comes on the heels of other significant troubling events. Back in May, a franchisee
owning 49 IHOPs filed for bankruptcy, and then the chain closed down 16 other restaurant
locations in the third quarter of 2020 as sales dropped by 30 percent.
In the same breath as IHOP's announcement came the news that Applebee's would also be
closing locations permanently as well. The same company, Dine Brands, owns both chains.
Applebee's announced it would close 15 restaurants during the final quarter of 2020 after having
closed 20 stores for good the previous few months. The chain's troubles go back years.
It closed nearly 100 stores for good in 2017 and dozens more in 2018. Applebee's has had
a difficult time attracting millennials and its attempt to rebrand itself as an upscale
dining option fell flat on its face and cost the company millions of dollars.
To add insult to injury, Applebee's executives seemed to think that they were above the pandemic
fray. Over the summer, CEO Steve Joyce said,
"There is no question, we will close some restaurants. But we don't think the number
is going to be a big number."
In fact, Applebee's believed that this time might actually be beneficial. Speaking of
the gap in the market that could arise from the closings of independent restaurants, Applebee's
president John Cywinski stated that the situation, quote, "stands out in terms of opportunity."
IHOP isn't the only breakfast chain with a gloomy outlook, as the Grand Slam Breakfast
could also be going, going, gone very soon. In March 2020, Denny's closed 15 locations
in New York alone. At the time, executives said that they wouldn't be surprised if more
restaurants had to close down as well.
The chain has had trouble fully staffing the late and overnight shifts at its 1,000-plus
stores. Around 70 percent of units have failed to return to all-hours dining since the coronavirus
pandemic began. Staff members may be concerned about how much money they will be able to
make during off-hours, potentially making them wonder whether it's worth their time.
Furthermore, limited-reopening capacities have only dug profits deeper into the ground.
What's especially frustrating is that Denny's was actually doing very well as recently as
last year. The company's income tripled in the second quarter of 2019, with same-store
sales rising nearly 4 percent overall. But needless to say, that trend wasn't destined
to continue indefinitely, though CEO John Miller, for one, is hopeful that things will
eventually turn around.
"I am confident that as risks abate and confidence returns, our momentum will return as well."
In June 2020, legendary "eatertainment" chain Chuck E. Cheese broke the restaurant bankruptcy
dam when it filed for Chapter 11 protection. With more than 600 locations, it was the largest
restaurant company to do so in the wake of the coronavirus pandemic. The company announced
the closing of more than 30 locations across the country, including several in California,
Florida, Massachusetts, and Ohio. In the filing, James Howell, the chief financial officer
of parent company CEC Entertainment, said,
"In ordinary times, the company would be financially sound."
While many restaurants can point to the pandemic as the source of its ills, Chuck E. Cheese's
problems actually started long before that. The company has a whopping $1 billion in debt,
most of which was accumulated in 2014 when Apollo Global Management, CEC Entertainment's
owners, purchased the restaurant. Although the brick-and-mortar Chuck E. Cheese locations
might not be around much longer, the brand could still stick around. The chain currently
has about 450 stores operating as carryout and delivery only. It's also committed to
offering at-home birthday packages. These would include games, online components, goodie
bags, tickets for future gameplay, branded tableware, and photo backdrops.
“They’re gone!”
"Drive us to Chuck E. Cheese."
Few, if any, restaurant chains were prepared for the coronavirus pandemic. But some have
been able to transition effectively. Golden Corral is not one of them. The chain was particularly
hit hard by the crisis because of its buffet business model. This style of service includes
shared serving utensils and communal spaces where all guests gather. These practices are
conducive to the spread of germs and have been all but eliminated across the country.
Some other buffet-style restaurants have switched to a cafeteria model where employees serve
the customers, but Golden Corral's buildings simply aren't structured to provide that service.
In October, Golden Corral's largest franchisee filed for Chapter 11 bankruptcy protection.
The company owns 33 locations in Florida and Georgia, all of which closed in March. As
of October 2020, six have reopened, and there are plans to open 18 more by the end of the
year. But it appears that will be it. According to CEO Lance Trenary,
"Recovery has been steady, but slow. Some franchisees will not be able to continue to
operate without additional financial relief."
The future's not looking too bright for Dave & Buster's. According to the experts, the
chain has a 16 percent chance of being unable to repay its loans in 2021. If that happens,
it will likely be forced to file bankruptcy, close locations, or both. That prediction
came from S&P Global Market Intelligence in August 2020, which ranked the food and entertainment
outlet as the most likely to default on its loans among the largest publicly traded restaurant
chains in the United States.
There is some silver lining in Dave & Buster's situation. Just a few months earlier, its
odds of not being able to pay its loans were north of 50 percent. Furthermore, S&P believes
that many competing "eatertainment" concepts will struggle to stay open, thus leaving an
opportunity for Dave & Buster's to gain market share. Still, the road ahead definitely looks
pretty tough. In September, the company's stock dropped 26 percent in one day as rumors
of bankruptcy swirled. That same week, it was reported that the chain would be laying
off more than 1,300 workers across seven states.
Of all the restaurant chains that have been struggling for multiple years, Subway may
just take the cake for being the most in trouble. After more than five decades in operation,
its time appears to be running out. The famous sandwich shop has been losing stores every
year since 2017. In total, 13 percent of Subway locations in the United States have closed
since 2015, including 2,000 in the past two years.
The chain has suffered from a host of self-inflicted wounds, not the least of which is a poor business
model. For many years, the company was dead-set on opening as many locations as possible.
But this only led to multiple Subway shops in the same vicinity eating into each other's
profits. Add in increased competition in both the sandwich and quick-service markets, and
it spells trouble for the "Eat Fresh" brand. Subway still has 41,600 locations in the world,
so it may take some time for it to disappear completely. But if this downward trend continues,
you may want to run and get that footlong while you still can.
Rumors of Red Lobster's demise go back at least as far as 2013. But what the chain is
facing now is more than just speculation. In March 2020, Moody's Investor Service downgraded
Red Lobster's credit rating to "poor quality and high credit risk." It defended its rationale
by noting,
"Prior to the impact of COVID-19, Red Lobster faced challenging operating trends, particularly
traffic."
Then in August, Red Lobster hired an advisory firm to help with exploring options moving
forward. That same month, the chain admitted that it would need to close some of its more
than 700 restaurants, although it held out hope that mass shutdowns wouldn't be needed.
Joerg Ayrle, CFO of Red Lobster's parent company, said,
"Maybe we'll lose some locations if landlords are really not understanding enough. That's
fine, too. We need to keep the pressure on cost."
One looming problem for the famous seafood outlet is a $355 million loan that will be
due in the summer of 2021. Repaying or refinancing that debt will be a tall order, as Red Lobster's
CEO admitted that the restaurant is going through the "most challenging time" in its
52-year history.
"Times Square is home to some of the nation's most popular restaurant chains, but some,
like Red Lobster behind me, are really feeling the pinch."
Just a month and a half into 2020, before the pandemic even hit the United States, TGI
Fridays announced that it would be closing dozens of locations. This news followed 34
restaurant closures in 2019. Just a few months later, as the coronavirus was wreaking havoc,
the company made it clear that about 20 percent of its locations would close for good. As
CEO Ray Blanchette put it,
"Some will close forever, without a doubt. Right now it's all triage and it's all about
cash: How are you going to make it through and keep the company solvent?"
"Generally, we're optimistic that we're gonna continue to find ways to improve."
At the time, TGI Fridays had 386 restaurants across the country. A loss of 20 percent would
mean closing 77 stores. While all companies have been affected by the pandemic, it was
particularly taxing on TGI Fridays' future plans. The chain's expected merger with Allegro
Merger Corporation was canceled in April due to "extraordinary market conditions and the
failure to meet necessary closing conditions," according to a regulatory filing. If it had
gone through, this move would have led to the restaurant going public, which could've
been a financial life preserver.
In March, the popular Asian bistro chain P.F. Chang's had its credit rating downgraded,
largely due to the impact of the coronavirus outbreak. But like so many others, P.F. Chang's
was already suffering from worrisome trends. Founded in 1993 in Scottsdale, Arizona, the
company was riddled in debt before 2020. When new owners took over in 2019, it owed about
$675 million.
One month after the credit downgrade, P.F. Chang's permanently shuttered a location in
New York, laying off more than 100 people, and then in May, another location in Maryland
shut its doors. The most telling sign of P.F. Chang's troubles came in September when the
company announced that it would be extending temporary layoffs of thousands of employees.
Even worse is the fact that the chain was unable to bring these workers back even though
it received a multi-million dollar loan from the federal government.
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