TGI Fridays, a well-known American casual dining restaurant chain, has filed for bankruptcy protection. This move comes after the company closed more than 100 locations in the U.S. over the past year. Analysts attribute the bankruptcy to the challenges of reversing declining sales as consumers focus more on cost, reducing dining out frequency, and opting for fast-food alternatives.
Established in Manhattan in 1965, TGI Fridays was once a popular gathering spot and among the pioneers of the "happy hour" concept. However, the pandemic led to prolonged closures of indoor dining, and ongoing inflation pressures on middle-class customers have compounded financial woes for the chain.
Before this wave of closures, TGI Fridays operated around 270 locations in the U.S. Currently, while the parent company is impacted, 39 franchised stores under the brand continue to operate. TGI Fridays is not alone; several other chains, including Red Lobster, have declared bankruptcy this year due to rising costs and empty tables, with bankruptcy filings in the restaurant sector expected to hit new highs, excluding 2020.
Industry analysts note that mid- to low-income family-targeted restaurants struggle with sharply decreasing foot traffic as many diners opt to eat at home. Some chains have resorted to cost-cutting measures, while others, like Denny's, have announced significant closures.
Notably, despite the financial distress, the overall U.S. restaurant industry is projected to see revenue growth, with consumer spending in restaurants expected to rise by 4.9% in 2024. However, this may be due to restaurants raising prices to offset increasing costs, rather than an increase in consumer demand. Same-store sales traffic in U.S. restaurants fell 3.3%, with casual dining experiencing a 4.5% decline.
Generational changes also play a role in the challenges faced by chain restaurants, as the cultural prominence of diner-style establishments decreases, and takeout options become more popular. Many traditional family and casual dining meals can easily be replicated at home, diminishing their allure.
In response, some chains are adapting by revising menus, closing unprofitable locations, or seeking bankruptcy protection as a strategic move. Investors interested in acquiring bankrupt chains are confident in their ability to revive brands through cost-cutting and efficiency improvements.
