(Bloomberg) -- Restaurant chains including McDonald’s, Olive Garden and Popeyes are battling to get customers through the door as more Americans choose to eat at home. Meanwhile, a growing number of lesser-known brands that can’t attract new diners are facing bankruptcy and restructuring.
American Blue Ribbon Holdings LLC, the owner of Village Inn and Bakers Square, and Bar Louie Restaurants, a chain of gastropubs, both filed for bankruptcy on Monday. Each cited declining foot traffic in the U.S. as reason for the need to seek Chapter 11 protection.
“The business is just over-built, especially casual dining and full-service dining,” said Michael Halen a senior restaurant analyst at Bloomberg Intelligence. “There are too many restaurants.”
In addition to declining store traffic, ABRH attributed its restructuring to increased competition, rising labor costs and a growing number of unprofitable restaurant locations, Chief Financial Officer Kurt Schnaubelt said in court papers. The Denver-based company currently owns and operates 97 restaurants. It closed 33 stores prior to the filing.
ABRH’s majority owner, Cannae Holdings Inc., has agreed to provide a $20 million bankruptcy loan to maintain the company as a going concern, according to court papers. Las Vegas-based Cannae has investments in restaurants and data companies, with nearly 30% of revenues coming from its restaurant holdings as of September 2019. Schnaubelt said ABRH will explore “strategic options” under bankruptcy and focus on restaurants that remain profitable.
Bar Louie, based in Addison, Texas, said opening new locations over the last few years helped increase sales, but the growth was funded by debt that has restricted the company’s liquidity, according to a declaration from Chief Restructuring Officer Howard Meitiner. Without sufficient cash to fund store refreshes and equipment maintenance, the brand experience was inconsistent across locations, Meitiner said.
“This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the company’s locations proximate to shopping locations and malls,” Meitiner said in the declaration.
Of Bar Louie’s 110 locations, 38 have “seen their sales and profits decline at an accelerating pace” since the company underwent a strategic review in 2018. Those 38 stores experienced a same-store sales decline of 10.9% in 2019, and were closed shortly before the bankruptcy filing, according to Meitiner. Lenders are providing a loan of as much as $22 million to keep the company operating in bankruptcy. BLH Acquisition Co. is the stalking-horse bidder for the assets of the company, according to court papers.
Other restaurant bankruptcies in the last year include The Krystal Co., Houlihan’s Restaurants Inc., Kona Grill Inc. and Perkins & Marie Callender’s LLC. All four of the restaurant chains cited declining customer traffic or increased competition as a reason for their bankruptcies.
“We need to see a correction in the restaurant industry,” Halen said. “We’ve seen a lot in the last few months, and I think this is just the beginning. Once the economy softens, you’ll see this getting worse.”
A spokeswoman for Bar Louie didn’t immediately respond to requests for comment. An ABRH spokesman referred to the company’s press release.
The cases are American Blue Ribbon Holdings, LLC, 20-10161, U.S. Bankruptcy Court of the District of Delaware and BL Restaurants Holding, LLC, 20-10156, U.S. Bankruptcy Court for the District of Delaware.
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