Current Trends in Restaurant Restructurings

Senior Managing Director Nishant Machado joined restaurant industry experts on June 29th, 2021 in the virtual conference session “We Are What We Eat – Current Trends in Restaurant Restructurings”. The session was part of the Association of Insolvency and Restructuring Advisors’ (AIRA) 37th Annual Bankruptcy and Restructuring Conference Virtual Series.

“There is a silver lining. Some of the operational changes that operators have made have been remarkable,” Machado said. “It begins with the acceleration of embracing technology. It’s QR codes, touchless payments, virtual restaurant tours, third party delivery, all of these initiatives, all embedded within technology, have been rapidly implemented through the industry, which otherwise would have taken a lot longer to implement. And its not only driving revenue growth but significant margin improvement.”

“The other (component) is the amount of creativity we have seen from operators,” during the pandemic, Machado said.

“It really broke down to ‘how do I maximize and leverage my fixed costs’. It was reflected in markets where you could go to a restaurant and it was actually like a grocery store, there were gifting platforms that were set up, beer and wine to go, and the biggest one without a doubt is virtual concepts.”

Machado indicated that virtual restaurant concepts, which provide a focused brand and food menu selection available through third party delivery providers, is an entirely new way for brick and mortar restaurant brands to enhance their revenue streams.

“Almost all of us have been on Door Dash or Uber Eats and ordered from a virtual concept and not known it was tied to some legacy brand,” he said. “We are seeing significant growth across platforms and the companies that do it well will continue to see that as a permanent revenue stream into the future.”

Another key factor of how restaurant companies survived during the pandemic, was an increased focus on operational efficiency and menu rationalization, Machado indicated. “COVID demanded improved efficiency and it also gave restaurants and operators, especially legacy restaurants, an opportunity, a cloak if you will, to make the changes they have needed to make for over 10 years, and some of those changes are tied to menu rationalization.” Machado continued to explain that many of the “changes were made mainly because of some of issues we have been facing as an industry, from a labor standpoint. So (a more focused menu) drives labor efficiencies, it drives COGS efficiencies, and provides a better consumer experience because it is more consistent food.”

In addition to menu rationalization, operational adjustments and the introduction of new revenue streams, the one big change has been the shift of marketing spend toward digital marketing. In Machado’s experience working with multiple different companies during COVID and in the post-COVID era, he has seen “a much greater adoption to digital marketing which is a lot more efficient and with a higher ROI typically,” he said.

“When we take a step back and look at what happened in the restaurant industry, in COVID’s wake, 10% of restaurants have gone away permanently. The ones that survived operate a lot more efficiently today, and they have greater opportunity for revenue growth because of the attrition in the market and new revenue streams that have been implemented, and I think that continues on for some time to come.”