Yahoo Finance Fast Casual Dining Hurt by Consumer Struggles
(Bloomberg) -- Rising housing costs and stubbornly high inflation are battering many consumers and the hit to their wallets is now hurting America’s low-cost restaurants.
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Chains including Red Lobster, which is considering a bankruptcy filing, and TGI Friday’s Inc. are becoming even more distressed as their labor expenses increase and more diners opt to eat at home. The reliance of a chunk of the restaurant industry on lower-income households means their customer base has been disproportionately impacted by rising prices, analysts from the analytics unit of Moody’s Corp.’s wrote last week.
Chains relying on that demographic “are feeling it the most,” said Dennis Cantalupo, chief executive officer of credit-rating and consulting shop Pulse Ratings. The operators must also be concerned about the potential for a more prolonged slump, he said, since the most price-conscious diners are slow to return once they shift toward eating at home.
The fate of many restaurants depends on monetary policymakers striking a delicate balance between using interest-rate hikes to keep prices in check and letting higher rates choke economic growth — risking job losses for the same customers now struggling with costs. About two in five restaurants didn’t make a profit last year, according to a survey, and a surge in the cost of certain commodities has already contributed to bankruptcies at some smaller and regional eateries.
Bankruptcy Filings
New York-area Sticky’s Finger Joint filed for bankruptcy in April, in part due to “unprecedented” chicken and potato price increases.
Tijuana Flats, a casual Mexican restaurant chain located primarily in Florida, also filed bankruptcy in April. Rubio’s Coastal Grill, a chain of 150 restaurants throughout Arizona, California and Nevada, is working with real estate advisers to renegotiate leases.
Prices are rising more slowly at the supermarket, meaning families can still stretch a paycheck further buying staples rather than ordering prepared foods, said Cantalupo and Michael Zuccaro, a vice president at Moody’s ratings unit.
“You get more bang for your buck there,” Cantalupo said. That’s a problem for the likes of TGI Friday’s, which is mulling debt options amid weakening sales.
Cash-Strapped
Meanwhile, as cash-strapped consumers hope for price stability, higher earners have more flexibility as economic indicators paint a rosier picture for them. Some are still electing to go to cheaper restaurants, which helps those eateries, but not enough to make up for loyal regulars pressing pause on weekly outings.
“Across the board, you have higher labor and food input costs and hesitant consumers,” said Mark Levin, a co-founder of advisory firm Asterisk Capital. “Some people will trade down from mid-priced to lower-priced restaurants, but a lot of lower-priced customers will just stay at home.”
Week in Review
From the US to Europe to Asia, companies — some of which found themselves shut out of the new issuance market not so long ago — are seizing on strong investor demand and a lack of clarity around where funding costs are headed to issue the most debt in years.
A regional US lender with $25 billion exposure to the risky commercial real estate sector has pulled off the same financing cost as Goldman Sachs Group Inc. by tapping a little-used market for bank capital.
Pension plans and insurers have been piling into funds that invest in equity tranches of collateralized loan obligations in recent months, helping a slew of hedge funds and other money managers raise at least $3.1 billion in less than a year for strategies solely dedicated to these investments.
Guggenheim Partners is talking to lenders, including private credit firms, to gauge their interest in financing the potential $6.6 billion buyout of US department store chain Macy’s Inc. by investment firms Arkhouse Management Co. and Brigade Capital Management.
Citrix Systems Inc. parent Cloud Software Group Inc. tapped investors for the third time in six months to repay more expensive obligations, the latest in a flood of riskier borrowers taking advantage of benign credit conditions to raise cash.
Apollo Global Management Inc. is evaluating options for the debt load of Brightspeed, a leveraged buyout acquisition that saddled banks with billions of dollars of the company’s debt two years ago.
Chinese developer Country Garden Holdings Co. said it cannot meet initial deadlines for interest payments on two local bonds and that a state guarantor would step in — marking the first test of a key government program to shore up builder debt.
A Hong Kong court has ruled in favor of creditors in cases involving a controversial credit protection mechanism popular among China’s borrowers, reviving the hopes of investors trying to claw back funds on defaulted bonds.
Banks are starting to sound out investors for a financing that will pay for Roark Capital Group’s leveraged buyout of sandwich chain Subway in a bond deal that could be among the largest of its kind.
UBS Group AG is sounding out investors for an $800 million leveraged loan that will refinance debt from Royal Oak Enterprises, a charcoal maker.
Europe’s largest supermarket retailer, Schwarz Group, is set to raise about $1.8 billion through a privately-placed bond sale.
Air Baltic Corp AS had to offer Europe’s highest coupon bonds so far this year to pull off a last-minute refinancing deal, even with Latvia’s government stepping up to buy a chunk of the debt.
Asia’s high-yield dollar bond sales this year have grown annually for the first time in five years, fueled by Indian financial companies’ rush to access offshore investors.
On the Move
Barclays Plc leveraged-finance veteran Brad Aston has left the firm, after working there since 2006.
Blackstone Inc. tapped Global Atlantic’s top strategy executive, Philip Sherrill, to lead its insurance business, a fast-growing piece of the firm. Separately, Blackstone also hired Tom Blouin, global co-head of leveraged finance at Barclays Plc, as a senior managing director.
The head of XP Inc.’s institutional fixed-income sales desk, Pedro Sturm, has left the firm. Rafael Gouvea, a trader on the firm’s fixed-income sales desk, also left the company.
--With assistance from Taryana Odayar.
(Corrects name of Moody’s unit and reference to fast casual dining in second paragraph)
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