Customers showing up for lunch at Bennigan's restaurants across the country found quite a surprise Tuesday morning, when all the corporate-owned locations had signs on display reading "closed for business."
Bennigan's Grill and Tavern closed all of its corporate-owned locations nationwide after filing for bankruptcy. That amounts to 160 locations, and about 10,000 employees are out of work. Independent franchises remain open for business as usual.
Some managers and some employees say they were called in the middle of the night. People got the calls at the stores, others were called at 1:00 in the morning at their homes. No one expected it.
Bennigan's spokeswoman Leah Templeton said Bennigan's and Steak & Ale restaurants – both of which are owned by Plano, Texas-based Metromedia Restaurant Group – have filed for bankruptcy, along with the holding company S&A Restaurant Corp.
But not all stores that use the Bennigan's and Steak & Ale names have filed for Chapter 7 bankruptcy, Templeton said in a statement. Franchise locations are not named as debtors in the bankruptcy filing and thus are not affected, she said. The corporate-owned locations comprise about half the entire chain. Bennigan's was founded in 1976 and the restaurant has (or had) locations in 32 states.
The statement said a trustee would determine "future decisions regarding the affairs of the debtor companies."
CBS 2 Legal Analyst Irv Miller explains that Chapter 7 bankruptcy means the company is being liquidated, as opposed to Chapter 11 bankruptcy, in which a company tries to reorganize and remain in business.
Miller said a Chapter 7 filing usually means a company has "major league debt," and it is unlikely that employees would get their last paycheck. He said someone could conceivably buy the assets and reopen the full Bennigan's chain, but that would only be after a long, drawn out court process.
The Wall Street Journal reported recently that the Metromedia Restaurant Group violated several terms of a lending agreement with GE Capital Solutions. The company prepared a bankruptcy filing, the newspaper reported.
The bankruptcy filing does not affect other two restaurant chains owned by Metromedia, Ponderosa and Bonanza Steakhouse, Templeton said in the statement.
"When consumers are squeezed, they don't have the money to eat out that they did before," said food industry consultant Ron Paul with Technomic, Inc.
Paul also criticizes Bennigan's for opening too many restaurants. He says other chains have made the same mistake. Between 2002 and 2007 the top 20 chains grew more than 7 percent per year, when demand was only 2 percent. That spells more bad news for more restaurants.
"We're going to have to see more units closed, because they're not going to get the traffic to justify the rent and pay the other expenses," Paul warned.
Given the state of the economy, customer Bob Perkins said such mass-shutdowns as these are to be expected.
"The cost of food is just too high, and it's all related, with gas prices and the economy itself," Perkins said. "Until somebody takes a stand and does something, you're going to keep seeing this."