This post is part of the On the Margin blog.
Attendees of the recent MUFSO conference arrived at an uncertain time in the industry’s history.
Private-equity groups and other investors are pumping money into upstart chains in the belief that they will grow and flourish in the coming years. Many of the young growth restaurants that won Nation's Restaurant News Hot Concepts Awards, like Naf Naf Grill and Honeygrow, have been recipients of such cash.
And yet industry-wide same-store sales have been weak, led by falling traffic. Ten operators have filed for bankruptcy in less than a year, and restaurant companies are changing CEOs at an almost unprecedented clip.
These events were on the minds of many attendees and speakers during the conference. There was a general fear that the industry is overbuilt and due for some closures — but also that there could be a changing of the guard of sorts, as many of these cash-flush upstarts grab business from old and tired concepts.
The industry is due for “some creative destruction” as “new brands put pressure on bigger brands,” Darden Restaurants Inc. CEO Gene Lee said during the conference. “There’s going to be more change in our industry the next 10 years than in the last 30.
“Don’t ask me what that change will be — I don’t know — I just know it’s going to change dramatically.”
That might be the quote of the conference.
Traffic has been down at least 1.9 percent in each of the past five months, according to MillerPulse. The general view among many attendees was that consumers are spreading their dollars around more locations — overall restaurant and bar sales rose 6.1 percent in September, according to federal data, reflecting a continued divergence of broad industry sales and chain-centric same-store sales.
But the industry continues to add jobs and locations. Restaurants added nearly 30,000 jobs in September, and are adding about 10,000 units per year.
“We’re overbuilt,” Wally Doolin, chairman of industry information provider TDn2K, publisher of the Black Box Intelligence same-store sales index. “There’s too many restaurants.”
That’s beginning to change, of course. Ten companies overseeing 17 chains have filed for bankruptcy in recent months, including Cosi Inc., Logan’s Roadhouse Inc. and Buffets LLC. Other companies, like Ruby Tuesday Inc., are shuttering underperforming locations and taking write-offs.
Unit closures related to the bankruptcies “provided a much-needed reduction in industry capacity,” according to a report Wednesday by Fitch Ratings.
Indeed, at the Dallas-Fort Worth Airport Tuesday afternoon, on my way home from MUFSO, I ran into someone who helps close restaurants and sell off the equipment.
“I’m busy,” he said.
It’s important to note that just about all of the chains appear to be surviving their bankruptcies, and in many cases competitors are filling many of the locations they have abandoned. Golden Corral, for instance, is moving into some of the bankrupt Old Country Buffet units. We’ve heard many operators eager to move into units that Cosi is shuttering.
Still, this is where the restaurant business is in 2016. It is a market-share game. So, as hot new concepts emerge to take business, they have to get it from somewhere. That means closures and bankruptcies could become more of a permanent part of the U.S. restaurant landscape in the coming years.
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]
Follow him on Twitter: @jonathanmaze
ThePremier sponsor is The Coca Cola Company
Presenting sponsors are: LoyaltyPlant, S&D Coffee, Thanx, The Coca-Cola Company
Keynotes/general sessions are presented by: Avocados from Mexico and Potatoes USA, La Tartine FoodService, Steritech
Pillar sponsors include: Boylan Bottling, GrubHub, JAVI A/V; McCain Foodservice; Smithfield-Farmland; Sweet Street Desserts; Texas Capital Bank; Tyson Foodservice; Univision; Ventura Foods; Whirley-DrinkWorks!
The Monday night awards reception and awards presentation are sponsored by: Avocados from Mexico
Coca Cola presents the Shake, Sparkle & Stir event, and Texas Pete® are sponsoring the MUFSO Kitchen Hero Cook Off, benefiting Share Our Strength’s No Kid Hungry Campaign
Hot Concepts Celebration is sponsored by Nestle Foodservice; TABASCO®; Young Guns Produce
MUFSO Breakfast sponsors are Community Coffee and Cholula
MUFSO Lunch sponsors are Cholula and Moore's Food Resources
MUFSO Room Key is sponsored by Arby’s
Refreshment breaks are sponsored by Cholula, Royal Cup Coffee and Wrigley
VIP Dinner sponsored by GrubHub for Restaurants, HAVI, Slade Gorton and Whirley-DrinkWorks!