Zane Tankel, chairman and CEO of Apple Metro, said consumer brands have to get more creative in an inflationary environment.
We're not even at the fourth quarter of this year, but bankruptcies of restaurant chains, operators and major franchises are already nearly double what they were in 2023.
Jonathan Carson, co-CEO of bankruptcy services and technology company Stretto, said there have been 17 Chapter 11 bankruptcy filings in the industry so far in 2024, compared with just nine during the same period last year, and he expects the trend to continue.
The number of Chapter 11 bankruptcies among major restaurant chains has nearly doubled this year compared with the same period in 2023. (iStock/iStock)
While this year's figures are lower than the pandemic era, when nearly 30 major franchises went bankrupt in a 12-month span, he said there are different dynamics at work in the new surge.
“In this context, the tough economic environment, post-pandemic recovery issues, rising labor costs, changing consumer habits and inflation will leave even more restaurants struggling in 2024,” Carson said in an interview with FOX Business, noting that these issues are also affecting other sectors of the economy.
Mediterranean restaurant chain files for bankruptcy
But he doesn't think that's the only reason for the rise in bankruptcies in the industry, especially this year.
Carson noted that when a company files for Chapter 11 bankruptcy, it doesn't mean it goes bankrupt or disappears; it just means that stakeholders believe the challenges the company faces can be resolved through that type of bankruptcy.
Seafood restaurant chain Red Lobster is one of several major chains to file for Chapter 11 bankruptcy protection this year. (Ting Sheng/Bloomberg via Getty Images/Getty Images)
A great example of this in the restaurant industry is the ability to get out of long-term leases with landlords, and Red Lobster is going through that exact process to do just that.
He pointed to further macroeconomic factors including interest rates being the highest they have been in recent years, lowering corporate profit margins and rising input costs.
Declining sales have led large companies to consider filing for bankruptcy
Carson believes changing consumer behavior is also driving more large restaurant chains to file for restructuring.
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He said his firm is tracking the fact that consumer balance sheets are currently in a difficult position, with student loan debt, mortgage debt and credit card debt on the rise.
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“The numbers are staggering and rising, and high interest rates are not going to help when it comes to the health of consumers,” Carson said, adding that “consumers are in a tough spot.”
