Restaurants Look for Debt Relief During Recession
Restaurants are Failing Everywhere
The recession has forced some restaurants to be in urgent need of debt relief. Because people have cut back on their spending, many restaurants have seen the lowest customer numbers in years. In particular, high-end to mid-level restaurants are seeing heavy declines in patronage because they are losing customers to fast-food chains. Even franchises that feature dollar menus are having difficult financial times. The key to their problems is debt. Many restaurants increased their loans for remodeling, expansion or buying other franchises. As the recession took its toll on consumer budgets, interest payments took their toll on the revenues businesses are seeing.
Standard & Poor Ratings Look Poor
Standard & Poor is a rating agency that looks at debt and restaurants facing tough financial times. They composed a list of restaurants they believe to be “vulnerable to deteriorating economic and financial conditions.” They stress that these aren’t necessarily on a “soon to file bankruptcy” or “soon to close” list, but they are going to have some economic issues in coming months. Here are the top three restaurants and chains they find to be most susceptible to financial issues.
Perkins Restaurant and Bakery
Perkins Restaurant and Bakery has about 500 locations throughout the Midwest. Although they have scaled back food expenses, their revenues have suffered greatly since 2008. Their parent firm lost $9.7 million in the first quarter of this year. With a market share of just eight percent, the company is in a particularly precarious position due to competitors such as Denny’s, which claims a market share of 22 percent. Perkins also owns Marie Callender’s Restaurant and Bakery chain, and this subsidiary is also suffering financially. It’s based in California and the market, due to the housing bust, is at an all-time low. A spokesperson for Perkins recently stated that they have “cut expenses by $7.3 million to help defray some costs and called an official halt to expansion.”
Sbarro is another chain that is suffering financially. There have approximately 1,000 locations throughout malls in America. Unfortunately, mall traffic is at a low and spenders are normally not looking to splurge on higher-priced lunches or dinners. The company lost $5.7 million this first quarter, more than double their losses this time last year. Any positive cash flow is being directed towards high interest payments, leaving only a small margin for immediate debt relief. Sbarro notes 40 percent of its total annual revenue comes during the Christmas season. They are hoping for a rise in the economy by then.
Krispy Kreme Doughnuts
Krispy Kreme Doughnuts is another company going through heavy restructuring. Since 2005, the company has steadily been closing unprofitable stores down to cut costs. Although they are having a difficult time, stringent cutbacks did manage to bring them $1.9 million in profits this last quarter. In addition, they have worked hard to negotiate with lenders, restructuring their repayment processes. Spokesman Brian Little noted the company’s cutting 40 percent of its debt and creating a $21 million cash cushion. He also stated they are confident about the products they offer, adding, “We sell an affordable indulgence consumers will purchase when they can’t afford to treat themselves or their families to other luxuries.”
As to where these restaurants and others will be in the future, only time will tell. They all need to quickly increase revenues and find debt relief. The question whether consumers are going back to their normal spending patterns to help save restaurants, or are they going to remain cautious? Hopefully these businesses will be able to wait out customers’ fears and once again create profits.