It has been a rough period for the restaurant business as consumer habits have changed.
People have become more cost-conscious, leading to lower sales for many chains and operators. Even McDonald’s has been forced into thinner-margin, heavily discounted deals.
A number of sit-down restaurant chains have struggled; the parent of Anthony’s Coal-Fired Pizza and the owners of Red Lobster filed for Chapter 11 bankruptcy.
The fate of the pizza chain, which shares an owner with the struggling BurgerFi hamburger chain, remains unknown.
Related: Struggling fast-food chain near Chapter 7-style bankruptcy end
Red Lobster has a deal on the table to be purchased by its largest creditor. That’s likely to get approved by the bankruptcy court, but it’s coming with a heavy price.
The seafood chain has already closed dozens of restaurants and roughly 100 more could close if new lease deals can’t be reached. Because it filed for bankruptcy protection, Red Lobster needed court approval for any moves it made. That likely increased the number of locations it will end up closing.
Losing control over your financial choices makes many companies work hard to avoid bankruptcy. Another struggling restaurant brand is making a massive change in order to merge with its United Kingdom franchise operator.
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An all-you-can-eat shrimp promotion cost Red Lobster over $11 million.
Image source: Red Lobster
TGI Fridays makes a big change
A casual sit-down restaurant and bar, TGI Fridays was founded with a simple concept.
“TGI Fridays stands for Thank God it’s Friday! We bring the exciting feeling of Fridays to our guests every day,:” the chain says on its website. “TGI Fridays is known for being the first happy hour place for singles to mingle. The original bar opened in 1965 in Manhattan, N.Y., and is still open today!”
The chain also claims that it invented the Loaded Potato Skin.
TGI Friday had outlined plans to be acquired by Hostmore, its UK franchise operator. That deal would have the chain trading on the London Stock Exchange under the TGIF symbol. The deal was supposed to close in the third quarter.
“Current TGI Fridays CEO Weldon Spangler and CFO Nik Rupp will lead the combined group, according to Hostmore’s filing, and retain leadership of the company’s U.S. and global operations,” RestaurantDive reported. “The combined company will operate 189 corporate-owned restaurants across the U.S. and U.K. The company also franchises around 400 stores across 44 countries.”
Those plans have changed.
TGI Fridays changing its business model
Hostmore and TGI Fridays have delayed the closing because the two companies plan to sell their owned-and-operated restaurants to franchise operators. TGI Fridays currently has 92 corporate-owned locations while Hostmore has 87.
“Hostmore and TGI Fridays now intend that the combined business will transition to an ‘asset light’ fully franchised model with no corporate stores,” the companies disclosed in a regulatory filing.
“Under this structure, TGI Fridays’ 92 existing corporate stores and the Group’s 87 corporate stores will be sold to existing or new franchisees, who will then operate the stores and pay a royalty to the combined group.”
If the sales are completed, the new company will have roughly 600 franchised locations. TGI Fridays has already reached deals to sell many of its locations, according to the filing, although no specifics were laid out.
The change appears to be motivated by the company’s ability to obtain financing for the deal.
“A prerequisite to entering into binding terms for the acquisition had been the completion of a refinancing at closing for the combined group,” the restaurant operators wrote. “As a result of the revised business model, ongoing funding requirements of the combined group will be significantly reduced, and, therefore, a new long-term debt financing package is no longer the preferred outcome.”
The sales will make finding funding — a major challenge in the current climate — no longer necessary.
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“Instead, the parties are in discussions with their lenders and other stakeholders to repay or reduce existing indebtedness using proceeds from the sale of corporate stores and/or new facilities from related parties,” the companies shared.
TGI Fridays has been working to get its finances in order all year. It closed 36 U.S. locations in January and sold another 8. A Brazilian franchisee for the chain filed bankruptcy in June.
