On the Margin
Casual dining continues to struggle

Casual dining continues to struggle

This post is part of the On the Margin blog.

Late yesterday, the Sharon, Pa.-based casual-dining chain Quaker Steak & Lube filed for federal bankruptcy protection. According to bankruptcy documents, there was nothing particularly notable as to why.

It had a fair amount of debt, including more than $13 million in various secured loans, and it leases the land for most of its 12 company-owned locations, to go along with 43 franchisee units and one joint venture.

In an affidavit filed with the court, CEO Greg Lippert said that the company had too many underperforming locations and too many units with declining same-store sales. The combination left the chain without enough cash flow to pay off debt. And now it has to be sold, most likely to TravelCenters of America Inc.

The bankruptcy underscores a point that is becoming more obvious: The casual-dining business is still difficult, especially for bar-and-grill concepts.

For a time, it appeared that casual-dining concepts were on the comeback trail. Traffic increased three straight months from December through February, for the first time in at least three years, according to MillerPulse.

NPD Group said that casual dining traffic was flat in the year ended May 2015. That was the first time in “several years” that casual dining traffic didn’t decline.

Still, traffic should be rising at casual-dining restaurants. Gas prices fell by an unprecedented amount late last year — which should help consumers who frequent casual-dining concepts.

Employment is up. Wages are starting to improve. Inflation is in check. On top of that, those three months from December through February enjoyed better weather and easy comparisons.

Some casual-dining chains have done fairly well, such as Texas Roadhouse, Buffalo Wild Wings and Darden Restaurants’ collection of concepts. Among private concepts, Red Lobster has apparently been recovering for the past year.

Yet business in the casual-dining sector is still limited, and for all of these chains with growing sales, there are plenty with declining sales. Famous Dave’s, for instance, has struggled with sales issues and broke financial requirements on its loan agreement. Logan’s Roadhouse has struggled with falling sales and a heavy debt load.

And traffic appears to have slowed in October. According to MillerPulse, traffic fell 1.3 percent at casual-dining chains during the month, down from a 0.2-percent fall in September — even though same-store sales actually accelerated for casual diners to 1.7 percent from 1.3 percent.

“You wonder if there’s too many restaurants,” survey co-founder Larry Miller said.

And, indeed, the number of full-service restaurants is still in decline — NPD noted, for instance, that the number of full-service independent restaurants declined by 3 percent in the 12 months ending in May.

The slowdown in casual dining this fall suggests more closures among independent concepts could be inevitable. And small chains with debt and leases could find themselves running afoul of lenders.

At least until consumers decide they like wait staff again.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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