Restaurant closures make a comebackRestaurant closures make a comeback

This post is part of the On the Margin blog.

Ruby Tuesday said late yesterday that it is closing 95 locations in what the chain is calling a “Fresh Start Initiative Asset Rationalization Plan.”

It’s not even Ruby Tuesday’s first closure this year. A franchisee closed 11 locations in Illinois last month.

Nor is it the worst set of closures by a restaurant operator this year.

Indeed, those of you keeping score can find plenty of closed locations.

Buffets LLC, the operator of Old Country Buffet, Ryan’s and HomeTown Buffet, filed for bankruptcy earlier this year and has closed 174 locations — more than half of its unit count.

Earlier this year, Max & Erma’s closed 13 locations. Bonefish Grill closed 14 units. Bagger Dave’s closed eight locations in December. Ignite Restaurant Group closed 7 Joe’s Crab Shack locations late last year and another eight this year.

Logan’s Roadhouse filed for bankruptcy this week and said it would close 18 locations. Bob Evans closed 20 locations last year and another 27 locations this year.

The rash of closures recently hasn’t been limited to casual dining. Last year, McDonald’s Corp closed 220 locations in the U.S. and Canada, and 350 worldwide. Noodles & Company closed 16 units.

Buffets LLC, the operator of Old Country Buffet, filed for bankruptcy earlier this year and has closed 174 locations. Photo: Buffets LLC

Other closures could come, too. This week, the owner of Fox & Hound and Champps filed for bankruptcy and, though unit closures haven’t been noted in the filing as of yet, such actions typically include closures.

Bravo Brio Restaurant Group closed two restaurants and continues to “evaluate” its restaurant portfolio.

Restaurant chains close units all the time. Look at any annual report of a large-scale restaurant chain and you’ll see at least a couple every year, and sometimes more. Ruby Tuesday has closed locations periodically since 2009.

But closures on this scale are indicative of an industry that is basically full.

During the recession, observers had said the restaurant industry was oversaturated, as consumers tightened their belts and reduced their dining out in 2009 and 2010. The industry largely obliged — bankruptcies among restaurant chains and large-scale franchisees were common. Chains like Quiznos shed units in droves.

It was so bad, in fact, that other chains reconfigured their designs so they could move into closed restaurants because there were so many abandoned locations on the market.

More recently, however, the industry has shifted its expansion into high gear. Restaurants have been adding more than 300,000 workers a year for a couple of years, a rate far higher than the economy as a whole. Numerous chains are in growth mode, and startups backed by private-equity dollars have helped fuel that growth with capital.

But the problem with the restaurant industry is that weak chains can survive for years because they can generate cash and the brand name almost always attracts investors who try turning it around.

And sales have been declining for many chains. This summer they turned starkly south industry-wide, exacerbating problems at companies already walking a difficult tightrope, such as Logan’s, Buffets, Fox & Hound and Johnny Carino’s, and they filed for bankruptcy.

Investors, meanwhile, put pressure on publicly traded concepts to improve same-store sales. One way to improve same-store sales is to close a few locations with bad results. Do that and you get an instant improvement in same-store sales in the next quarter or two and look like a genius.

To be sure, this is not 2009. There have been worse mass closures. But if the industry is indeed in a “restaurant recession,” as many people believe, and is bound for a couple of years’ worth of sales weakness, such closures could become more common.

Contact Jonathan Maze at [email protected]
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