The restaurant industry has faced significant challenges this year, with rising costs and changing consumer habits driving numerous chains into bankruptcy. According to industry experts, there is no clear positive outlook for an industry in turmoil. Jonathan Carson, co-CEO of market strategy company Stretto, explains that most restaurants struggle to make a profit due to the difficult nature of the business and the unpredictable trends. He believes that the industry is ripe for restructuring due to higher prices and an increasingly burdened consumer balance sheet.
Carson’s company is aware of at least 17 national restaurant chains that have filed for bankruptcy in 2024. Among the high-profile casualties are Roti, Buca di Beppo, Tijuana Flats, Sticky’s Finger Joint, and Red Lobster. Laura Adams, a money expert and author, attributes these bankruptcies to changes in consumer habits, such as cooking at home and ordering delivery. She notes that lower-end restaurants are particularly affected as consumers prioritize affordability.
One significant change in the restaurant industry, especially during the pandemic, has been the rise of home delivery services like Uber Eats, Grubhub, and DoorDash. However, these delivery companies charge large commissions that further strain struggling restaurants. DoorDash, for example, can take up to a 30 percent commission. Justin Winslow, president and CEO of the Michigan Restaurant and Lodging Association, describes this as a “prisoner’s dilemma,” where restaurants must decide whether to accept the opportunity for increased sales at the cost of reduced profitability.
Despite the challenges, DoorDash has become the top restaurant delivery app in the United States, with 550,000 partner restaurants and grocery stores. However, the company has yet to achieve profitability. In response to concerns about their impact on restaurants, DoorDash’s corporate communications group states that their mission is to grow and empower local economies.
In order to survive, restaurants must offer something unique to entice consumers to dine out. Adams emphasizes the importance of differentiation and suggests that well-known brands like Red Lobster may need to transform in order to stay relevant. Carson believes that many of the Chapter 11 bankruptcy filings in the restaurant industry this year are motivated by the desire to get out of rent agreements. Filing for bankruptcy allows companies to walk away from leases and remove the liability from their profit and loss statements.
Although the current economic and consumer market is challenging for restaurants, the industry is still reeling from the long-term effects of the pandemic. Winslow reveals that many restaurants in his organization are still struggling, with a majority experiencing a decline in foot traffic and profitability. He warns that two out of every five restaurants are at risk of closure in the near future.
Given the difficult business environment, Adams advises caution for anyone considering opening a restaurant. She emphasizes the need for expertise and a proven track record of success before venturing into the industry.
