Why Restaurants Are Going Bankrupt

It’s a tumultuous time to be in the restaurant business. In the past 11 months alone, at least 13 major restaurant chains have declared Chapter 11 bankruptcy including: HomeTown Buffet, Johnny Carino’s, Quaker Steak & Lube, Black-eyed Peas,  Logan’s Roadhouse, Sweet Tomatoes, Souplantation, Don Palo’s, Bailey’s, Old Country Buffet, Ryan’s, Fox & Hound, and the most recent causality Cosí, just to name a few. This leads many to ponder why restaurants are going bankrupt and if this warning signal for the economy at large?

Why Restaurants Are Going Bankrupt

Restaurants are Difficult Businesses

Managing a restaurant is not for the faint of heart as they are heavily capital intensive operations and no matter the genre of restaurant, there is usually stiff competition. Everyone knows that a business, in order to be successful must turn a profit, and the leading indicator of this in the restaurant business is sales growth. If the latter drops off, it becomes increasingly difficult to turn a profit. Typically these restaurants that have filed, ran into sales growth issues, went deeper into debt, and then never recovered.

Restaurants that Filed Bankruptcy More than Once

It appears from our list of restaurant bankruptcies that buffets are the most difficult to run. Of the restaurants that filed bankruptcy in 2016, or early 2015, Ryan’s’, HomeTown Buffet, and Old Country Buffet filed bankruptcy three times previously. Fox & Hound and Johnny Carino’s both filed two times before. These companies most likely went bankrupt again due to being weak after emerging from previous bankruptcies.

Minimum Wage Increases

In the case of the recent bankruptcy filing of Don Pablo’s, a Tex-Mex restaurant which manages 16 restaurants, the Vice President implied that “increasing minimum wage requirements” were partially responsible for their need to declare bankruptcy. In fact, in a recent poll of San Francisco, California restaurants that went out of business in September, one forth of them mentioned the upcoming increase in minimum wage as a reason.

Conclusion

Restaurant performance has been in a tailspin recently, with the lowest numbers industry wide since 2013. Many restaurants such as Ruby Tuesdays are cutting costs and decreasing their footprints. With over 14 million restaurant workers in America, this doesn’t bode well for the economy as a whole, and expectations are not high that business will pick up. If you own a business, a reorganization of your debts or a liquidation of the company may be the best option: contact a certified California bankruptcy attorney in your state to find out the differences in a Chapter 11 and Chapter 13 bankruptcy for businesses.