A recent report by the American Institute for Economic Research suggested the end of restaurants as we know them. In the report, they cited numerous chains that have closed locations. These brands have shut down units as a long-term growth strategy that helps ensure viability or as part of a major restructuring overhaul. Some units are located in California and shut down due to the new minimum wage law.
- TGI Fridays closed 36 underperforming units and sold eight to its former CEO.
- Denny’s closed 57 locations in 2023, citing inflation as one of the contributing factors. They have plans to close up to 20 in 2024. The brand recently made headlines when one of their restaurants in Ashland, Ohio, abruptly closed.
- Boston Market went from 300 to 27 units as it struggled with lawsuits, evictions, and unpaid bills.
- Mod Pizza shut down 27 locations, which included five in California.
- PDQ, a regional chain that stands for “People Dedicated to Quality,” closed eight restaurants in South Carolina and North Carolina. According to a statement, they noted market conditions as the reason behind their decision.
- Bloomin’ Brands, the parent company to Outback Steakhouse, Bonefish Grill, and Carrabba’s Italian Grill, shuttered 41 locations as part of their restructuring plans.
- Subway closed 443 units in 2023, 571 in 2022, and over 1,000 in 2021. Despite these closures, they still lay claim to the country’s largest restaurant chain, with 20,133 locations at the end of 2023.
- Applebee’s closed 35 locations in 2024.
- Buffalo Wild Wings is reducing its numbers by 60 locations.
- IHOP is shutting down 100 units.
- Hooters abruptly closed about 40 locations.
The Reason for the Closures
If you’re in the restaurant industry, you’ve undoubtedly felt the pressure of rising prices, increasing labor costs, reduced traffic, and falling sales. The report by Peter C. Earle, Ph.D., also noted higher debt costs. In 2023, 68% of full-service restaurants reported carrying, on average, about $51,863 in debt, a number that rises with climbing interest rates. Inflation and associated rising food costs are additional concerns. Earle notes that, since January 2021, the core consumer price index (CPI) on beef, veal, chicken, potatoes, and cheese has risen about 17% for food at home. That figure rose to 22% for food away from home. Data also suggests that consumers are pulling back due to financial pressures around interest rates, inflation, and growing credit card balances. According to QSR Magazine, the first quarter of 2024 saw traffic for limited-service chains falling by 3.5% year-over-year. What else do we have on our plate? Rising minimum wages, utility rates, and everyday costs, such as paper products. According to Earle, “The cumulative impact of these pressures is straining the industry from single-location establishments to nationwide and international chains. If accelerating U.S. unemployment registers the impact of contractionary monetary policy measures on the broader economy, the current difficulties faced by the restaurant sector are likely to escalate. And insofar as those economic conditions persist, all but the stoutest and most well-capitalized food service industry interests may find it increasingly challenging to serve customers, the impact of which will be felt by employees, investors, and peripheral businesses alike.”How Restaurants Are Addressing Top Concerns
Restaurant operators are taking a deep dive into their menus, including costs, best performers, portion control, and size reduction. As customers lean away from expensive offerings and focus more on value, operators are redefining their menus to reflect their guests’ changing preferences. As their guests become more cautious about spending, restaurants are judiciously approaching price increases. Additional strategies include any that arrest traffic decline and increase visit frequency, such as loyalty programs and targeted marketing. One platform that helps operators price their menus without affecting demand or leaving money on the table is F&B Insights. This platform offers AI-driven menu pricing that leverages nationwide and local market intelligence, letting you see exactly what competitors are charging as well as how they’re changing their menus in light of the changing market. To learn more about F&B Insights or to schedule a demo, contact EMERGING.