Positive Outlook for Restaurants Despite Bankruptcies

dish on white ceramic plate

Many restaurants may be waiting until COVID-19 uncertainty fades to declare bankruptcy as there is a lack of interest in turning some chains around in the current business climate, reported Forbes (Oct. 20).

There were no bidders for California Pizza Kitchen assets when put up for auction earlier in October after the company declared bankruptcy in July. Additionally, Ruby Tuesday’s bankruptcy came earlier this month.

“Bankruptcies often happen because of the decrease of the valuation of a business. In the long-term, that’s what it’s about—valuation. Bankruptcy is trying to settle that equitably by allowing a forum for creditors, investors, and interested parties to hear the case,” said David Bagley, managing director at Carl Marks Advisors.

“I believe you’re going to have more of these situations until the current uncertainty goes away. If you tell me today that I can open up my business at 100%, I can make a plan to get my operations and finances and marketing up and running. I have history and comps to know what that could look like,” Bagley continued. “I can make reasonable assumptions if I’m operating at 100%. But until we reopen at 100%, I can’t solve the issues of valuation. Who knows when we’ll get to 100%.”

Bagley is still optimistic, believing those restaurants that are well capitalized and well run will emerge stronger than ever. He also believes there is a significant amount of pent-up demand from consumers to dine out when we get to the other side of the pandemic.

Additionally, some restaurants are hoping to turn operations around by using technology. The industry is utilizing technology to help weather 2.5 million lost jobs, 100,000 closed eateries, and $240 billion in lost revenues, reported AzCentral (Oct. 19).

“In an environment like this, any activity to generate incremental revenue can be a lifeline,” said Hudson Riehle, EVP at the National Restaurant Association.

Virtual kitchens, robots, better illness screening, automated ordering and delivery, and advanced menus are among the technologies being leveraged by the industry.

Virtual kitchens rely heavily on increased consumer comfort with smartphone ordering, as well as third-party food-delivery services such as Grubhub. They also include other technological features such as a conveyor belt that brings orders from each kitchen to the counter.

At Kitchen United, customers can order meals from more than a dozen brands. It also offers a dining-hall experience at one location, along with pick-up and delivery options.

With robot technology increasing during the pandemic, we could see a much wider application in the restaurant industry, especially in quick-serve businesses, according to a report from Ball State University.

A California-based company, Miso Robotics, recently revealed a pilot program to place grilling robots in White Castle kitchens. It has a robot that can cook hamburgers, french fries, chicken nuggets, popcorn shrimp, corndogs, and other food. It also tracks food deliveries and inventories, and helps to maintain social distancing by reducing the number of people in a kitchen.

White Castle vowed not to lay off workers as a result of robotics but switch them to other positions.

On another positive note, Moody’s Investor Services boosted its rating for the restaurant industry to “stable” from “negative,” citing customers’ increasing willingness to dine out, reported New York Post (Oct. 20).

The rating agency said it expects industry-wide operating profit to rise by 15% in 2021 after falling by more than 30% in 2020, led by fast-food drive-thrus and takeout. Casual eateries have also been helped by their pivot to curbside pickup and delivery, the rating agency said.