The restaurant industry is still analyzing the effects of last week’s funhouse ride on Wall Street. But one scream of fright should’ve been audible before the white-knuckle trading began: There’s been another wave of restaurant bankruptcies, this time of franchisees.
The busts tend to get less attention than the filings of a brand’s parent company, which themselves have been less than high-profile in recent weeks (the most recent chain to put creditors at arm’s length: Bill Johnson’s Big Apple, a five-unit chain of family restaurants in the Phoenix area).
Taken together, the bankruptcies prove the industry shakeout is still underway, this time on a market-by-market basis.
It’s tough to read a pattern in the failures. On first glance, fast food is the source for a disproportionate number. This Wednesday, an auctioneer in Dallas will sell off the Burger King units of a bankrupt franchisee. A bankrupt El Pollo Loco operator has nine units on the block in southern California. The weekend brought news that a Rally’s franchisee in Birmingham, Ala., was throwing in the paper napkin.
But the full-service sector has seen its share of failures, too. Chevys, a low-ticket casual chain, lost two stores in St. Louis when an eight-unit franchisee there couldn’t cut the mustard.
A number of family restaurants, including franchises of bankrupt Perkins & Marie Callender’s, have provided the bankruptcy courts with considerable business from that segment.
Here and there, a common element does crop up: Locations rendered unfeasible by the economic downturn. It’s often less a matter of a traffic freefall than a function of a rent that’s tough to cover.
The outcome should be healthier local markets. Supply usually dips, to some degree, and the shuttered stores provide an expansion opportunity if the landlord is more realistic going forward about the lease.
The question, underscored by last week’s roller coaster, is how all this uncertainty is going to affect consumers and lenders.