In the restaurant business, situations can fall apart quickly. Since the business has such small margins in the first place, even a small downturn can turn a profit into a loss.
That can happen for a number of reasons. Consumers may simply eat out less because they’re worried about the economy. They may also trade down and opt for a restaurant one (or more) levels cheaper.
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A steak person can become a burger person or a “something even cheaper” person when their budget does not easily cover their higher-end tastes. Some people, of course, are just being cautious, while others are facing up to realities of their personal financial situation.
Restaurants are also vulnerable to other aspects of the economy. If labor costs increase, which they generally have, then that puts stress on the bottom line. The same thing is true when it comes to ingredients and other costs.
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Of course, sometimes a restaurant fails because it loses customers. Maybe a new competitor takes market share, or perhaps overall tastes change.
In reality, it’s usually a combination of multiple things that drags a restaurant down. Sometimes, however, salvation comes after failure, and a new owner might be enough to fix a chain that looked to be on its last legs.
There are a lot of players at multiple price points.
Image source: Shutterstock
On the Border was on the brink
At the time of its March 5 Chapter 11 bankruptcy filing, On The Border shared this description of itself in its court filing.
“Founded in Dallas, Texas in 1982, On The Border is known for its sizzling mesquite-grilled fajitas, award-winning margaritas, house-made salsa and endless chips and salsa. In the past 40 years, On The Border has steadily grown over time from a single cantina to one of the country’s most well-known domestic and international Tex-Mex restaurant chains offering affordable, consistent, cultivated delicious menu items featuring bold flavors from Texas and Mexico.”
The chain had already closed 77 locations prior to the bankruptcy filing, but had been shrinking. In the document, the company tried to explain its market edge.
“On The Border leverages its unique, authentic brand to differentiate itself from others in the casual dining sector. As of the Petition Date, the Debtors continue to operate 60 (60) restaurant locations across eighteen (18) states. All sixty (60) of the Debtors’ corporate-operated restaurant locations are leased. In addition to the restaurants operated by the Debtors,” it shared.
The chain also has 20 additional franchised restaurants in the U.S. and South Korea.
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Closed locations span 24 states including Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Texas, and Virginia.
A key part of the Chapter 11 bankruptcy filing was about getting out of the leases at the locations it no longer occupied.
On The Border has a new owner
On The Border entered bankruptcy by taking $10 million in Debtor-in-Possession financing with OTB Lender, LLC, an affiliate of Pappas Restaurants, to fund the Chapter 11 process. That was always meant to be the first step toward Pappas taking over the struggling Tex-Mex chain.
“Additionally, the Company anticipates entering into an asset purchase agreement with an affiliate of OTB Lender, LLC shortly after the commencement of the Chapter 11 cases,” it shared in the court filing.Â
A higher bid could have emerged, but that’s not what happened. Pappas shared that it had won the rights to the On The Border Brand in a May 7 press release.
“This acquisition will bring together two iconic Texas-based restaurant brands and expand Pappas’ presence in the Tex-Mex category by adding a nationally recognized concept that offers bold flavors at an accessible price point,” it shared.
The new owner sees it a purchase that makes sense, given its existing portfolio.
“On The Border’s value-driven approach complements Pappasito’s Cantina, known for its fresh ingredients, sizzling fajitas, hand-shaken margaritas, and high-energy atmosphere. Together, the brands will allow Pappas Restaurants to serve a wider range of guests across more markets,” Pappas shared.
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The new owner has not shared whether it plans to close any more locations.
Based in Houston, Texas, Pappas Restaurants is a family-owned and operated restaurant group with a portfolio of iconic brands, including Pappadeaux Seafood Kitchen, Pappasito’s Cantina, Pappas Bar-B-Q, and Pappas Bros. Steakhouse.
