Restaurant chains Bennigan’s and Steak & Ale, owned by privately held Metromedia Restaurant Group, filed for Chapter 7 bankruptcy protection yesterday and immediately closed the doors of about 200 restaurants. These closures do not include franchised locations. Yesterday’s bankruptcy filing follows the largest single restaurant bankruptcy earlier this year (Buffets Holdings, Inc.), and as I said before, the cycle is only just beginning as today’s consumption recession combined with increased costs is impacting operators across the industry.
  • Although all casual dining operators will benefit from this reduced capacity, Brinker’s Chili’s restaurants should be the biggest beneficiary as Bennigan’s was a direct competitor within the bar and grill segment. From a geographic exposure standpoint, both Bennigan’s and Steak & Ale’s most penetrated markets overlap with Chili’s locations. Specifically, 23% of Bennigan’s domestic restaurants (includes franchised locations) and 27% of Steak & Ale’s restaurants are in Texas. Chili’s has the most geographic exposure relative to its total number of stores to Texas (accounts for 17% of its restaurant base). Chili’s second biggest state is Florida where 11% of its restaurant base is located relative to Bennigan’s 18% and Steak & Ale’s 21% exposure.
  • Chili’s returns have been hurt recently by its own overly aggressive unit growth and by over capacity in the casual dining segment. EAT management had already taken steps to reverse its declining returns by slowing unit growth plans for FY08, FY09 and FY10. Now, excess capacity within the industry, particularly within the bar and grill segment, is starting to come down.
Restaurant Base Exposure to Bennigan's Most Penetrated States—% of Respective U.S. Restaurants
2008 bankruptcies do not include Bennigan’s and Steak & Ale