Bankruptcy courts are busy again with restaurants

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.

The art of the slam

And now, a public service warning to the goliaths of restaurant advertising: Put on a helmet. A pack of would-be David’s is betting that a bucket of stones can be an effective marketing program.

Second-tier chains have been hurling more disparagements at bigger rivals than Don Rickles serves up in a month. Look at the more memorable campaigns of recent weeks. Carl’s Jr. took aim at McDonald’s revered Big Mac by introducing a “Big Carl” in commercials that all but taunted na-na-na-na-na-na. The commercials define the new premium sandwich by highlighting how the Mac can’t measure up in heft (the Big Carl boasts twice the meat and cheese) and price (it costs roughly 50 cents less).

Then there’s the absolute trash-talk. In a confrontation between talking sandwiches, all Mac can offer in its defense is having been born with a third bun.

Another installment makes fun of McDonald’s two-all-beef-patties Big Mac jingle, and a third features a Big Mac asking a Big Carl about the size of his beef, explaining that he's considering a patty enlargement to make his buns look smaller.

The kick-the-Arches effort coincides with a Carl’s publicity campaign aimed at McDonald’s new Third Pounder Angus burger. The effort encourages consumers not to be taken in by “the McHype,” and notes that Carl’s has been featuring big Angus burgers for years.

A similar don’t-you-wish-you-were-me? Campaign raged this summer as the El Pollo Loco chicken chain took aim at the king of the coop, KFC. After the bigger chain introduced its grilled chicken, EPL, a grilled-chicken specialist, ran a series of commercials that pecked at KFC’s honesty.

One noted that KFC stores still don’t have grills, so how authentic could the new product be?

Others asserted that the new chicken was flavored in part with beef, without any heads-up to consumers.

Still another replayed comments that were supposedly left on an EPL answering machine by consumers who had tasted both EPL's grilled chicken and KFC's new product. Patrons had been asked to sample the two products side by side and recount their preference.

Several of the comments slammed EPL's product, asserting that Kentucky Grilled Chicken was superior. The ads point out that the callers' numbers had been traced to KFC's headquarters in Louisville, Ky., where EPL had no stores.

Not all of the snapping comes from regional chains like Carl’s and EPL. Burger King, for instance, ran commercials in some markets earlier this year to promote its double cheeseburger as a better deal than McDonald’s comparable item. The ads featured a young man who balks at his friend’s suggestion that they hit Burger King for the two-patty sandwich. Under pressure, the kid admits that he has tiny hands, which he then displays. How can he hold a behemoth like the BK double burger?

The commercial closes with the friend holding the BK burger so his tiny-handed friend can take a bite.

The campaign was reportedly resurrected in Chicago, and New York stations are airing a variant where the tiny-handed youngster objects to getting a $1 Jr. Whopper.

(If you’re over 27, you may not be aware that there’s a series of tiny hand videos on free vid-sharing sites that have nothing to do with BK. The clips show a guy with tiny hands trying to do things like audition for an antacid commercial or work as a babysitter. Apparently this is high humor among the same people who find The King to be hilarious.)

Sometimes the sniping even creeps into familial situations. The Arby’s sandwich chain is promoting its new Roastburger sandwiches as “the burger done better.” The concept is a sister of Wendy’s a burger chain.

Then again, it’s hard to have sympathy for Wendy’s. The tagline for its burgers and other specialties: “It’s waaaay better than fast-food.”

Who said chains can't satisfy locavores?

As far as I can tell, there are two main drawbacks to living on the East Coast: One, Red Sox fans; and, two, we don't yet have the West Coast's homegrown fast-food chains, particularly In-n-Out, Burgerville and El Pollo Loco. That's especially painful today as Burgerville once again refutes the notion that a restaurant chain, and a burger joint at that, can't provide locally grown produce.

If I can read through the tears, let me recount the promotion I just fielded from my e-mail inbox. It's a heads-up that Walla Walla (Washington) sweet onions are in season, which means the Vancouver, Wash.-based chain is adjusting its menu. You can now get onion rings made from the local onions, a seasonal signature of the chain, as well as a burger topped with the onions and a sour cream-and-horseradish sauce. The Horseradish Burger is accompanied by a salad of pickled Walla Walla's, fresh zucchini and grape tomatoes.

I'm dying here.

But it gets worse. Next month, the announcement mentions, the focus shifts to Washington State cherries, which presumably will be at their peak about then (we're just starting to get ripe ones here in Yankee territory). "And in September," taunts the e-mail, "it'll be peppers." As in fresh, locally grown peppers.

Hey, we have bagels.

This is why we really need to perfect transporter technology.

Okay, back to e-mailing Theo Epstein and asking if he's still pleased with the Johnny Damon trade.

8 restaurant cos. put on Moody's 'death watch'

Eight restaurant companies, including the parents of Outback Steakhouse and Arby’s, have been included on a list of companies rated by Moody's as the most likely to default on their debts.

In addition to OSI Restaurant Partners and Arby’s Restaurant Group, presumably a predecessor of what’s now Wendy’s/Arby’s Restaurant Group, the 283-company list includes El Pollo Loco Inc.; Perkins & Marie Callender’s Inc.; Chevys and El Torito parent Real Mex Restaurants; and Sagittarius Retaurants Inc., apparently an affiliate of Del Taco and Captain D’s parent Sagittarius Brands.

The roster also lists a company called Rare Restaurant Group LLC, identified as being in the fast-food business, which suggests it is not connected with Rare Hospitality, the steakhouse operator that’s now part of Darden Restaurants.

The list has been posted in its entirety by the financial website SeekingAlpha.com.

Moody’s calls the list The Bottom Rung, but media reports have opted for more colorful slugs, including "company dead pool"; "dead companies walking"; and "the death watch."

Most also note the credibility of Moody’s Investors Service has been called into question by its failure to anticipate the meltdown in mortgage-backed investments. The catastrophic collapse was not foreshadowed by the risk ratings of Moody’s or the two other major financial rating services.

Moody’s is quoted as saying about 45% of the Bottom Rung concerns will default on their debts during the next year. One list-ee, Eastman Kodak, has already blasted the report as “irresponsible” and inaccurate.

Another super-sized franchsee goes bankrupt

A reader of my blog on the Fohboh social networking site pointed out another major restaurant bankruptcy that came to light earlier this week. John Gantes, head of the 110-unit Breckenridge Group, a multi-concept franchisee in southern California, reportedly filed for personal bankruptcy in late 2008 and is now trying to reorganize his sprawling operations.

Breckenridge is a franchisee of El Pollo Loco, Famous Dave's, Johnny Carino's, Burger King, Applebee's, Bruegger's, Ruby's Diner and Arby's, according to the Orange County Register.

The OCR story sites court documents indicating that Gantes owes $280 million.

The week also brought an acknowledgement from Domino's that nine of its franchisees had gone bankrupt, and a Ch. 11 filing by the parent of the Black Angus steakhouse chain.