CHICAGO -- The suddenness of Bennigan's bankruptcy filing may have surprised many industry observers, but the difficulties facing S & A Restaurant Corp. and many other casual dining chains have been readily apparent for some time, according to foodservice consulting firm Technomic.
Restaurant chains Bennigan's and Steak & Ale filed for Chapter 7 bankruptcy protection on Tuesday and stores owned by its parent company have or will shut their doors, said the Associated Press. The companies owned by privately held Metromedia Restaurant Group of Plano, Texas, filed for bankruptcy protection [image-nocss] Tuesday in the Eastern District of Texas, less than two months after Metromedia said it was not preparing to do so. Metromedia Restaurant Group is a part of Metromedia Co., owned by billionaire John Kluge, that has interests in entertainment, radio stations and medical equipment.
Locations owned by franchisees were not part of the bankruptcy filing and will not be shut down, said Larry Briski, president of the Bennigan's Franchise Operator Association. The 138 domestic and international franchisee-owned restaurants are "open and fully operational," Bennigan's Franchising Co. LP and Steak & Ale Franchising Co. LP said in a statement. Briski said there are about 150 company-owned Bennigan's restaurants.
"These restaurants share many subtle and complex challenges that extend beyond this difficult economic climate," said Ron Paul, president of Technomic. "To some extent, they've become victims of their own success—a mature category with too many units and not enough differentiation, at least in the eyes of consumers."
According to Chicago-based Technomic, the top 20 casual dining chains in the category in which Bennigan's operated had unit growth of 45% during the most recent five-year period, well beyond the growth in demand.
Recent Technomic research on the segment also identified factors that have helped some casual-dining operators remain successful, while others have stumbled. Those factors include strong unit economics, excellent execution in food quality and service and the ability to convey a strong price/value perception with consumers, regardless of the total amount spent.
"In terms of achieving differentiation, it's hard to underestimate the importance of the food element," said Paul. "Consumers are naturally drawn to unique, signature menu items. When the chain can also layer in excitement through new or limited-time offerings, they help create an environment where consumers want to come back. A good experience can generate all-important buzz around the concept."
All restaurants have been struggling as consumers cut back on discretionary spending to better deal with high gasoline prices, the weak housing market and inflation, added the AP report. The hardest hit have been casual dining chains and bar and grill restaurants, which charge higher prices than fast food and other quick-service chains.
Bar and grill restaurants have also suffered from intense competition. Morningstar analyst John Owens said several chains expanded quickly, making it more difficult for customers to differentiate between them and forcing many companies to cut prices to lure diners. "Bennigan's was the weakest of the major players," Owens told AP.
Meanwhile, commodity costs have soared, forcing chains to either raise menu prices or see profits plunge. Credit has also been tight, making it difficult for companies to restructure their debt.