Why So Many Restaurant Chains Are Struggling In 2024

While small businesses face high failure rates (45% close in their first five years), new restaurants face even steeper odds, with three out of five new restaurants not surviving the first year. While most of us accept that starting a new business is fraught with financial challenges that can make it difficult to ever become established, you might be surprised by the recent uptick in failures among already established larger restaurant chains. From Red Lobster to Buca di Beppo to Rubio's, several large, well-known restaurant chains have filed for bankruptcy so far in 2024.

As most know, the COVID-19 pandemic led to a significant glut in U.S. business bankruptcies. According to data from Technomic, a food-service industry research firm, there were roughly 72,000 fewer restaurants in the United States in 2023 than there were in pre-pandemic 2019. However, while consumers were more primed to accept larger restaurant bankruptcies during the worst parts of the recent pandemic, it can seem unusual to be experiencing such a high number of those bankruptcies today.

Obviously, there can be myriad reasons for an increase in bankruptcies, but the current economic climate has put an especially difficult burden on restaurants as they try to keep stay afloat. With costs creeping up across the board, it's not just consumers facing higher prices on their food and the basic necessities. It's important to remember, everything that financially affects a consumer, from their groceries to their gas to their utilities, is equally felt by the restaurant industry.

While U.S. restaurant chains are definitely struggling, it's worth noting it's not only the restaurant industry experiencing an uptick in business bankruptcy filings. According to Law.com's National Law Journal, in the first six months of 2024, Chapter 11 filings experienced a 34% increase over the same time period in 2023. Many of these filings list a wide confluence of events, ranging from the extended hardship of the COVID-19 pandemic to an increase in the price of ingredients and goods (for those curious, here's our guide on what happens when you go bankrupt). Some restaurants might also be dealing with changes to minimum wage laws, at the state, city, or county level, which can affect their overall operating budget.

Jonathan Carson, co-CEO of bankruptcy services and technology firm Stretto, explained to Fox Business, "In this situation, a challenging economic environment, post-pandemic recovery issues, rising labor costs, changing consumer habits, and inflation have caused more restaurants to struggle in 2024." While costs (from increased rent prices to the fallout of pandemic losses) seem to be the biggest reason behind the higher number of bankruptcies this year, many companies anticipate a certain "leveling out" for the economy in the upcoming year, where they will be able to find a new equilibrium.

While many major restaurant chains have already filed for bankruptcy in 2024, others are trying to financially hold on. Chains like TGI Fridays, Outback Steakhouse, and Applebee's have strategically closed locations that didn't meet sales expectations in an attempt to keep their overall brand solvent. Similarly, while Denny's hasn't technically declared bankruptcy (one of its franchisees has, however) it has also closed numerous locations across the country. Denny's CFO, Robert Verostek, specifically pointed to inflation as the reason for the company's financial struggles during an earnings call back in February 2024. While inflation has continued to cool compared to 2022 numbers, the cost of goods has not come back down to pre-pandemic levels. According to the U.S. Department of Agriculture, U.S. food prices rose by 25% between 2019 to 2023.

Another important consideration for restaurant businesses is the shifting way people use them. According to a 2023 survey from Deloitte, while a majority of people are back dining at restaurants at pre-pandemic levels, their expectations have changed considerably. Shifting consumer demands like more automation (when ordering), a cap on delivery fees, and a higher priority placed on value, could end up being another sticking point for restaurants (especially if they're slow or unwilling to adapt to the post-pandemic market). Said Jean Chick, principal with Deloitte Consulting, "With large-scale changes on the horizon, driven by advanced technologies and ongoing shifts in consumer demands and preferences, we can expect restaurants to look dramatically different in 10 years."