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Why Restaurants are Filing for Bankruptcy

Times have been tough for a while but one business that has especially suffered was the restaurant business. There has been a huge increase in bankruptcy in the restaurant industry lately and you may be wondering why that is. This increase can be attributed to a variety of different factors but it this large amount of chains filing for bankruptcies is unusual enough that it does warrant a closer look. There are a lot of restaurant chains that have decided to go the route of debt protections especially at this current point in time.


Many restaurants do end up filing for credit protection at least every year. This is because restaurant businesses are very capital-intensive that frequently needs to expand and are subject to leases generally. Combine that fact along with the fact that the restaurant industry is one that deals with some of the most fickle customer base. The restaurant industry is constantly borrowing money and if they are having a problem with getting customers in, they will find themselves in trouble with the creditors.


Very recently, 8 restaurant chains in the past 10 months have all filed for bankruptcy. This wave is highly unusual and is very reminiscent of similar trends that occurred in 2009 and 2010. During those years, there were quite a few chains that opted for debt protections. However, this recent wave of bankruptcies is as a result of a decline in sales at some restaurants that were having financial difficulties already. They were on the cusp of breaking and eventually did and filed for bankruptcy. It is always tight earning a profit in the restaurant industry, as previously mentioned, and the extra strain of falling sales will eventually cause the companies to fail.


So why do they file for bankruptcy? For the most part, these restaurant chains file for bankruptcy because they have a lease that they want to work around so that they can sell their business. The high amount of debt that some businesses have can be so overwhelming that bankruptcy is the only way out. For instance, when Logan's Roadhouse filed for bankruptcy, they had a long-term debt amount of around $400 million.

The case of Cosí, the most recent restaurant to file for bankruptcy, is the perfect example of why restaurants file for bankruptcy. They were always losing money and it was long suspected that they would end up filing for bankruptcy. Cosí was never really a company that made a profit and had created a long-term debt of around $300 million. Eventually, they just kept losing their customers until they had no other option but to file for bankruptcy.

The restaurant industry is a very fickle business to get into so it is important to understand just how difficult it can be. It is always an upwards climb, which is why debt protection is something that is a regular thing in the industry. Hopefully as the economy gets better for the customers, these restaurants are going to get a better shot.

 

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