After TGI Fridays became the latest restaurant chain to seek Chapter 11 bankruptcy last weekend – contributing to this year’s record for such filings – the expected finger-pointing began.
Most chains explicitly outline the confluence of issues leading to such a move in their filings, but TGI Fridays’ recent challenges seem especially unique given the company’s inability to keep steady leadership over the past year and a half. Consider the timeline. In May 2023, TGI Fridays’ four-year CEO Ray Blanchette left the company, and board chairman and co-founder of parent company TriArtisan Rohit Manocha took over in the interim (TriArtisan acquired TGI Fridays in 2014). The company credited Blanchette for turning the brand around, including “both national and global growth.” On his watch, TGI Fridays grew same-store sales in 2022 by 8% versus 2019 and refreshed its loyalty program
Still, upon Blanchette’s departure, Manocha noted that the company was entering a “new phase of revitalization,” adding that one of his priorities was, “creating relevance with today’s consumers.” Shortly after he took over the role, TGI Fridays launched what it called its biggest menu update since the 1990s – a Grilled & Sauce menu allowing customers to mix and match proteins with sauces and rubs. The company also developed a new lineup of cocktails to complement the menu.
About two months later, Brandon Coleman III was promoted to CEO from CMO. He stepped down for personal reasons in October just as the casual chain added more menu offerings, including appetizers, salads, and bowls, as well as a new events service on its quest to become a more “experiential hospitality and entertainment destination.” Coleman was replaced by Weldon Spangler. According to Spangler’s LinkedIn account, he left the position in August.
A directionless ship is a risk in normal times, let alone this turbulent environment, and with TGI Fridays' carousel of leadership came a dizzying number of changes. We liken this to throwing spaghetti against a wall to see what, if anything, will stick. However, the chain’s problems have just accelerated since.
The concept that put “happy hour” on the map nearly 60 years ago began sharpening its focus on a relationship with virtual kitchen company C3 in 2022 to sell items like poke bowls. Sure, everyone was pursuing a virtual brand strategy on the heels of the pandemic at that time, and the partnership was projected to generate more revenue per location at a time when the mothership was hemorrhaging sales and units.
But then, late last year, TGI Fridays expanded its partnership with C3’s Krispy Rice to add sushi to the menu at its restaurants, alongside its signature wings, burgers, sandwiches, and ribs. It’s one thing to leverage the kitchen during off-peak hours for virtual brands. It’s a different story when you’re adding a new platform to the core menu that just doesn’t seem to fit. Then again, TGI Friday’s parent company TriArtisan Capital Advisors made a $10 million investment in C3 in 2021, so there was plenty of reason to try.
To kick off this year, TGI Fridays closed 36 underperforming locations. In April, TGI Fridays entered into a $220 million deal to be acquired by its largest franchisee, Hostmore, and become a public company on the London Stock Exchange. In September, that deal fell through and Hostmore filed for administration (the United Kingdom equivalent of bankruptcy) while putting its 87 stores up for sale.
Last month, the chain closed nearly 50 more locations, leaving the once-thriving casual dining concept with just 164 domestic locations. By comparison, in 2013, the chain’s U.S. footprint was 527 restaurants, marking a nearly 70% retrenchment in the past decade, according to Technomic data.
And now, of course, TGI Fridays is seeking Chapter 11 protection. The chain's court document cited COVID as the impetus behind its filing and that should come as no surprise given the brand was uniquely positioned toward the after-work crowd. The company reported assets and liabilities between $100 million and $500 million in its filing, while analysis from Creditsafe drills a little deeper into its mounting debt. Creditsafe’s head of brand Ragini Bhalla notes erratic payment behavior from the chain, including its Days Beyond Terms (DBT) spiking every few months, dipping for a month, then jumping back up.
“This kind of volatility is a strong sign that cash flow is tight, and the company is having trouble making on-time payments,” Bhalla said. “Looking at the DBT, you can see that TGI Friday’s has struggled to pay its bills on time for the last 12 months. But Creditsafe data also shows that, in some months like July 2024, over 50% of its outstanding bills fell into the excessively late (91+ days) category.
“When you look at these trends, it’s quite clear that the company’s liquidity has fallen and it’s becoming harder to take care of its financial responsibilities. So, if other debts are piling up and it’s a matter of choosing between paying operating expenses, employees and suppliers, suppliers may be lower on the priority list.”
If and/or when TGI Fridays is sold out of bankruptcy, things could become steadier with a smaller system and a sharper focus, but a lot of work needs to be done in the meantime. For starters, the chain has lost quite a bit of traffic in its key markets in the Northeast and Midwest, according to Placer.ai data. This, according to head of analytical research R.J. Hottovy, puts further pressure on visitation trends. To overcome mounting debt, TGI Fridays needs to rectify topline sales, and it needs traffic lifts to help do so.
But those traffic numbers have been abysmal of late. According to Placer.ai data, foot traffic to the chain has been down more than 30% in recent weeks. During the week of Oct. 21, visits were down nearly 39% year-over-year. TGI Fridays’ recent closures have had an impact on traffic numbers, but visits-per-venue have also fallen by more than 10% year-over-year, while visits to full-service restaurants overall were up during the same period.
“TGI Friday – like most full-service restaurants – has faced an increasingly challenging environment in 2024," Hottovy said. "Visitation trends are down year-over-year–due to a combination of store closures and fewer visits per existing location. At the same time food, labor, and other restaurant operating costs remain high.”
Contact Alicia Kelso at [email protected]
