This post is part of the On the Margin blog.
As my colleague Ron Ruggless reported last week, Landry’s won the auction for Joe’s Crab Shack owner Ignite Restaurant Group.
The company bid $57 million, edging out an offer from a shell company that, according to a source, was formed by Johnny Vassallo, founder of Mo’s Restaurants in Houston, and Houston businessman Corbin Robertson.
Interestingly, the $57 million wasn’t even the most that Landry’s would have paid. Recall that shortly after the bankruptcy was filed, the company bid $60 million and won a deal with Kelly Investment Group to act as a second stalking-horse bidder. The company ended up saving $3 million.
Landry’s and its CEO, “Billion Dollar Buyer” Tilman Fertitta, are getting a debt-free, streamlined version of Ignite and its two chains.
Ignite went public in 2011. At the time, it had 129 locations, nearly all of them Joe’s Crab Shack. The company had been adding locations and sales in the previous years, and in its initial weeks received strong interest from investors.
As we’ve written about before, the company had problems almost from the get-go. And then it bought Macaroni Grill, took its eyes off Joe’s and Brick House Tavern + Tap, and those chains’ sales and profits plunged.
At its peak, in 2014, Joe’s operated 139 locations around the country. It slowly began closing units as sales problems increased, declining to 130 locations in 2015, and then 112 units at the end of 2016. That’s the number of units the chain had when it filed for bankruptcy.
According to the company’s website, Joe’s Crab Shack now operates 72 restaurants. Local reports say the chain has closed locations around the country. It no longer has units in Indiana or Michigan, while locations closed in Oklahoma, Alabama and New York. The location nearest my home, in Roseville, Minn., has also shut down.
Some of the closures came with little warning. At the Roseville location, a sign atop the handmade closed sign was written for attendees of an apparent party scheduled for the location — and subsequently moved to the Olive Garden next door.
Based on Fertitta’s comments to Ruggless this week, that won’t even be the last of the closures. Fertitta told Ruggless that the chain should have about 60 units.
We don’t know what other locations could be slated for closure, assuming the chain does close more restaurants, but Joe’s Crab Shack still has 11 locations in states in which it only has a single unit. Closing those units would get Joe’s Crab Shack to the “about 60” level Fertitta mentioned.
Of the 72 units remaining, 33 locations are in three states: Texas, California and Florida.
Fertitta has built a large empire of restaurants, many of which he acquired when they were in weak positions or in bankruptcy. Based on foodservice revenue, his company is the 16th largest operator in the country, according to NRN data. The Ignite deal will only add to that empire, and Joe’s Crab Shack and Brick House should both fold into the Landry’s operation nicely.
And Fertitta, by the way, was after Joe’s Crab Shack. Brick House almost seemed like a throw-in. As he told Ruggless last week: “We did not bid on Brick House, but because we had the largest combined bid, we bought Brick House …”
NRN readers know that closures have become more common over the past 18 months, as consumers shift spending, hurting sales and exposing weaker players, particularly in casual dining.
Just over the past week, Applebee’s said it planned to close up to 135 locations. And Famous Dave’s of America Inc. said it would get “more aggressive” on closures because it can no longer afford to operate locations and run a franchised business.
Given concerns about oversupply and weak traffic, you can probably expect more closures if the industry doesn’t get a sales boost soon.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
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