Zombie restaurants keep hanging on

When OC-based Real Mex Restaurants, operator of Chevys, El Torrito, and Acapulco, filed for bankruptcy protection in October, it closed only 30 of its 156 locations. Sbarro, the Italian fast-food chain, shuttered just 31 of its 429 U.S. stores. This is why the chain restaurant business has been struggling: Too many operators and too little demand. It's good news for customers because the restaurants, desperately trying to keep the cash flowing, are lowering their prices. But it's also creating zombie restaurants, which can barely cover expenses. From the NYT:

Analysts say the restaurant industry bears some similarities to the consumer electronics retail industry. Before 2009, there were far too many electronics stores. Then, Circuit City failed, closing 567 stores. The sudden shuttering was painful for the chain's 34,000 employees, but it meant greater market share for other retailers, like Best Buy, Walmart and Target. "We need that Circuit City event," said Steve West, a restaurant industry analyst for ITG Investment Research.

When the downturn hit, analysts said that thousands of restaurants would have to shut down in order to bring supply and demand back into balance. But instead of going down, the numbers kept going up - even among the chains filing for bankruptcy.

The oversupply is partly a result of the economics of the restaurant chains, which often keep underperforming restaurants open as long as they are generating enough money to cover basic costs, said Mark F. Fallon, vice president for real estate for Jeffrey R. Anderson Real Estate, a Cincinnati company that develops shopping centers and operates 15 restaurants, including 12 Hooters franchises.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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