PLANO Texas Bennigan’s Grill & Tavern brand are vowing to soldier on despite their long-time franchisor’s filing for Chapter 7 bankruptcy liquidation and closure of its Bennigan’s and Steak and Ale restaurants. —Franchisees of the 30-year-old
Metromedia Restaurant Group filed liquidation petitions in court for S&A Restaurant Corp. and affiliates July 29 as MRG shuttered about 200 restaurants, though that left as many as 138 franchised Bennigan’s still operating. —Franchisees of the 30-year-old
The bankruptcy by S&A—a company that’s part of the influential legacy of industry legend Norman Brinker, who founded Steak and Ale 40 years ago—was a “sad commentary on the current health of the U.S. casual-dining segment,” said John Glass of Morgan Stanley Research. —Franchisees of the 30-year-old
However, the shuttering of nearly 200 full-service restaurants helps the “industry supply and demand dynamics” by reducing a glut of such eateries at time when many are suffering falling sales amid the struggling economy, Glass added. —Franchisees of the 30-year-old
“The closure will benefit remaining players, including Chili’s, Applebee’s and Ruby Tuesday, as well as specialty chains like Red Robin,” Glass said. —Franchisees of the 30-year-old
Owners of the still-operating Bennigan’s branches, 80 in the United States and 54 abroad, were optimistic that new brand overseer Atalaya Capital Management, which brought in CRG Partners to assist, would help the franchisees deal with the challenging foodservice economy. Officials of Atalaya, which has offices in New York and Atlanta, and CRG, with offices in nine U.S. cities and Vienna, Austria, held conference calls with franchisees in the immediate aftermath of S&A’s bankruptcy action. —Franchisees of the 30-year-old
Rick Pastorek, whose BOL Inc. in Baton Rouge, La., owns six Bennigan’s in Louisiana and one in Memphis, Tenn., said: “The franchisees are very committed. The brand has strength in our communities. It’s been a resilient brand in spite of Metromedia Restaurant Group and the effort that they fell short of.” The BOL president estimated that 134 Bennigan’s and Steak and Ale restaurants were still operating. —Franchisees of the 30-year-old
However, the number was placed at 138 later on the same day as the S&A bankruptcy filing, after initial media reports said it was Bennigan’s and Steak and Ale that had filed for liquidation. By way of clarification, a statement was issued by Bennigan’s Franchising Co. LP and Steak & Ale Franchising Co. LP, saying they owned the two brands’ trademarks and franchise agreements, and stressing they were not part of the Chapter 7 filing. The two entities said they would continue to support the chains’ 138 domestic and international franchised restaurants, which “remain open and fully operational.” —Franchisees of the 30-year-old
It was not immediately clear whether Metromedia, despite the Chapter 7 filing affecting corporate restaurants, still controlled the two brands’ franchising and trademark entities, or whether Atalaya or such Metromedia creditors as GE Capital Solutions had gained control under the terms of lending agreements. —Franchisees of the 30-year-old
Regardless, Larry Briski, president of the Bennigan’s Franchise Operator Association, said his restaurants in Indiana would remain “open today, tomorrow and months and years to come.” —Franchisees of the 30-year-old
Casual-dining chains have experienced growing pressures on both their bottom and top lines recently, and weaker, older brands have been hard-pressed to stay afloat. With wholesale food prices having risen 7.6 percent last year and 8.5 percent in this year’s first half, the margins of full-service restaurants have especially suffered at the same time that droves of consumers have traded down to less-expensive dining options in the face of record levels of personal debt, soaring gasoline costs and a real estate crisis. —Franchisees of the 30-year-old
Chris Sciortino, a director at Baird Investment Banking who focuses on middle-market consumer segments, said other restaurant companies remain at risk of failure and liquidation, especially with tight credit markets making it difficult to restructure debt. —Franchisees of the 30-year-old
“The concern over bankruptcy is heightened, especially at companies with a lot of leverage,” he said. “They might be able to manage through this downturn over the next six months, but if we’re in a prolonged weak period, the opportunity for true bankruptcies could get larger.” —Franchisees of the 30-year-old
Sciortino said a company at risk remains at the whim of consumer spending trends and their resistance to a rebound, though no one know whether an upswing would come in six months, eight months, a year or longer. —Franchisees of the 30-year-old
“I think in a situation like Bennigan’s, where casual dining has been extraordinarily hard hit, its harder to envision that someone would get excited about this brand and want to turn it around,” he said. —Franchisees of the 30-year-old
Both of Metromedia’s casual-dining brands have rich histories. Bennigan’s was founded in 1976, and Steak and Ale was created by Brinker 10 years earlier. Many foodservice executives began their careers working with one or both of the chains. —Franchisees of the 30-year-old
But difficulties for the brands became apparent earlier this year. In late May, Clay Dover, who had been MRG’s chief executive since late 2007, resigned, citing “differences” with ownership about the direction of the company. Metromedia Restaurant Group is held by billionaire John Kluge’s Metromedia Co. conglomerate. The Wall Street Journal in June reported that MRG had violated lending agreements with GE Capital Solutions and was on the verge of a bankruptcy action, which MRG denied. —Franchisees of the 30-year-old
Yet the July 29 filings for liquidation surprised many Bennigan’s and Steak and Ale employees. S&A Restaurant Corp. and its affiliates listed assets of as much as $778.9 million and debts not exceeding $324.2 million in 38 petitions filed in U.S. Bankruptcy Court in Sherman, Texas. The filings did not include MRG’s Ponderosa and Bonanza steakhouse chains, which operate under Metromedia Steakhouses Co. LP. —Franchisees of the 30-year-old
Foodservice analyst Ron Paul, president of Chicago-based Technomic Inc., said Bennigan’s and Steak and Ale “share many subtle and complex challenges that extend beyond this difficult economic climate. To some extent, they’ve become victims of their own success—a mature category with too many units and not enough differentiation, at least in the eyes of consumers.” —Franchisees of the 30-year-old
According to Technomic the top 20 casual-dining chains, which included Bennigan’s, had seen unit growth of 45 percent during the most recent five-year period, far beyond the growth in consumer demand. —Franchisees of the 30-year-old
Jeffrey A. Bernstein, vice president of Lehman Brothers Equity Research, said in a report that “over the past couple of years, casual-dining industry sales and traffic trends have been under considerable pressure, driven by a more challenging macro-consumer environment as well as several years of rapid store expansion, leading to supply outpacing demand. —Franchisees of the 30-year-old
“While signs of stabilization in terms of the consumer are limited,” Bernstein said, “the news of [S&A’s] filing for Chapter 7 bankruptcy protection and the related store closings will remove some of the excess supply and is a net positive for the industry.” —Franchisees of the 30-year-old
Slower growth for years will be needed to correct the imbalance, he said. Bernstein estimated that the closures of the MRG-owned restaurants represented about $500 million in annual sales, or about 1 percent of the casual-dining sector’s sales, a sum that would be reallocated by consumers to other casual-dining operators. —Franchisees of the 30-year-old
Glass of Morgan Stanley research said that his team expected U.S. bar-and-grill capacity to grow at a rate less than 1 percent this year, versus prior expectations of 4.4-percent growth. —Franchisees of the 30-year-old
“For casual dining as a whole, we now think capacity growth will be 2.7 percent, versus our prior estimate of 4.5 percent,” the Morgan Stanley report said. —Franchisees of the 30-year-old
“While still plagued by high food costs and some deterioration in consumption, we view this news as a long-term positive for casual dining, the bar and grill operators in particular,” the report said. “With capacity reduced, we believe the remaining participants will see a greater rebound on sales when demand returns to more normalized levels.” —Franchisees of the 30-year-old
Pastorek, the Louisiana Bennigan’s franchisee, said the bankruptcy actually may be good for the remaining system. “We feel it’s a new day for Bennigan’s,” he said. —Franchisees of the 30-year-old
Sources close to the bankruptcy situation said some of the shuttered S&A restaurants might reopen as franchised stores. —Franchisees of the 30-year-old
New brand managers Atalaya and CRG partners have hired seven people, including several from Bennigan’s corporate management staff, franchisees indicated. —Franchisees of the 30-year-old
“They are looking at purchasing and the food distribution chain, and making sure there are no shortages or stoppages in that,” Pastorek said. “They are making sure the food distribution chain still works.” —Franchisees of the 30-year-old
Ken Stein, managing director of franchise consultancy Kensington Co. & Affiliates in Roslyn Heights, N.Y., cited franchisees’ successful takeover of the Ground Round restaurant system in 2004 after that brand’s parent abruptly declared bankruptcy. —Franchisees of the 30-year-old
Similarly, he said, Bennigan’s operators know “it’s in their best interest to keep the name alive.” —Franchisees of the 30-year-old
Pastorek said he and other operators “have a lot of hope for our brand. There are a lot of faithful Bennigan’s patrons out there. Our guests have been very good to us and want to see us be successful.” —Franchisees of the 30-year-old
