SOUTHLAND Mich. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
The study, released earlier this month, focused on the performances of 110 restaurant chains across four categories—fine dining, casual dining, fast casual and quick service—and found that the fine-dining and casual-dining segments are most likely to experience decreases in earnings, cash and returns this year, according to AlixPartners executives. And some of those decreases could be dramatic, they said. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
The study also determined that, on average, restaurants throughout all segments are now faced with an increased debt-to-equity ratio of 1.38, from 0.68 in 2006. Furthermore, cash levels have dropped at an average rate of 6.5 percent per year since 2004. To combat these pressures, restaurant companies should look to control costs, especially through supply chain and real estate management, the consulting firm said. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“While certainly there are healthy companies in every restaurant category, our analysis suggests that without aggressive intervention, up to 40 percent of chains face the possibility of a severe liquidity crisis, which could mean failure within a year,” said Andy Ever-busch, a managing director at AlixPartners and leader of the Southland, Mich.-based firm’s restaurant and foodservices division. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“If things worsen in the economy, that timeline could shrink to just a few months for many chains,” he added. “Overall, we found declining growth rates and declining same-store sales in all four sectors, as well as declining EBITDA [earnings before interest, tax, depreciation and amortization] in three of the four sectors, with only quick service bucking the trend.” —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
The report echoes other recent research from credit rating agencies Standard & Poor’s and Moody’s Investors Services, which detailed long laundry lists of restaurant companies, especially those with high debt burdens and slowed sales, which are most vulnerable to credit default or expensive refinancings. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
Chains surveyed in the AlixPartners study included Domino’s Pizza; Wendy’s/Arby’s Group; OSI Restaurant Partners, parent of the Outback Steakhouse chain; Starbucks Corp.; Brinker International; Real Mex Restaurants Inc., parent of the Chevy’s and El Torito chains; Morton’s Restaurant Group; and Ruth’s Hospitality Group. To date, the majority of those companies have posted negative same-store sales and hefty quarterly losses. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
The consulting firm also looked at restaurant chains that are performing well throughout this economic downturn, including Darden Restaurants, Buffalo Wild Wings, McDonald’s, Burger King and Panera Bread. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
Still, the thrust of the report focused on companies in crisis. Tampa, Fla.-based OSI, for example, in February said systemwide same-store sales for the fourth quarter had fallen 9.5 percent at Outback, 7.4 percent at Carrabba’s Italian Grill, 14 percent at Bonefish Grill, and 19.6 percent at Fleming’s Prime Steakhouse and Wine Bar. It posted a net loss of $506.4 million, which included $512 million in impairment charges, revenues fell 10.2 percent in the fourth quarter to $928.3 million. The company’s debt totaled $1.72 billion. OSI has hired AlixPartners to assist in the development of a cost-reduction plan for 2009. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
In order for restaurant companies to remain solvent during the crisis, they must keep all costs in check, said AlixPartners director Adam Werner. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“Just as lean production has saved billions of dollars for leading manufacturing companies, our research and experience in the field shows that restaurants could also benefit greatly from the application of similar techniques, such as minimizing energy and water use, optimizing labor schedules, and controlling waste and inventory levels with improved demand forecasts,” he said. “When combined with proven techniques in supply-chain and real-estate management, this could amount to savings of at least 15 percent against current costs.” —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
While the doldrums of the casual-dining segment have been well-documented, the study found that quick-service chains are not immune to the potential capital crisis of an overleveraged balance sheet and weak sales. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“When we look at EBITDA growth compared with revenue growth, it’s easy to say that QSR and fast casual are doing well and that casual and fine dining are not,” said Adam Fless, also a managing partner at AlixPartners and a co-author of the study. “But there are many QSR chains that are not doing well.” —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
Case in point: Atlanta-based Wendy’s/Arby’s Group, which this month reported a same-store sales decline of 8.7 percent at its domestic Arby’s units for the first quarter ended March 29. The company’s North American Wendy’s stores fared better as its same-store sales increased 1 percent. The company also reported a first-quarter loss of $10.9 million, which included $15 million in one-time charges related to last year’s merger of Wendy’s International and Triarc Cos. The company most recently amended its credit terms to combine the debt loads of Wendy’s and Arby’s. The company held $1.08 billion of long-term debt as of March 29. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
Fless added that the pizza segment has taken a big hit in the past year as well, the result of the reemergence of home-meal replacement offerings from supermarkets, competition from quick-service sandwich chains and the continued volatility of commodities prices. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“One intuitively thinks [the segment] should be winning because it’s a low-cost way to feed the family,” he said. “Decreases in tomato prices have not come down to the extent that other commodities have, so from the cost side operators are not getting the same benefits as others. Plus the sandwich chains, with their $5 promotions, have really taken it to the pizza chains.” —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
Despite the sobering results found in the study, operators that change some of their current business behaviors to better weather the downturn will be poised to thrive as the environment improves, Fless said. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“Obviously, there are some chains reporting positive results in each segment, so there is light in the tunnel,” he said. “But the way out of this is for chains to pull the right operating levers. They will have to trim the fat, no pun intended. —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.
“What will emerge is a healthy, vigorous industry,” he continued. “There are going to be fewer players, but the ones who are left will be playing better… We are seeing encouraging signs already.” — [email protected] —U.S. chain restaurants are four times more likely to fail this year than they were a year ago, and as many as 40 percent of them could face cash flow problems over the next year, a study conducted by business consulting firm AlixPartners has found.