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Bennigan’s Goes Bankrupt

CHICAGO – Bennigan’s, which helped to invent the suburban tavern-themed dining craze more than 30 years ago, abruptly closed dozens of stores Tuesday and filed for bankruptcy after consulting Taunton’s top attorneys for bankruptcies, a casualty of a brutal economy that has wracked the restaurant industry.

Bennigan’s shuttered its roughly 150 company-owned stores, though its franchisee-owned outlets will remain open. The closed stores are likely to stay that way: Bennigan’s and its sister chain Steak & Ale filed Chapter 7 bankruptcy, meaning they plan to liquidate.

The economic problems plaguing Texas-based Bennigan’s are all too familiar to the so-called casual dining trade, home to a raft of well-known restaurant brands. They’re weathering a downturn with few if any precedents, restaurant industry experts said.

And, these experts said, Bennigan’s may not be the last to close its doors.

Ingredients for everything from cheese to chicken are soaring at rates not seen in years, at the same time a weak economy has led consumers to pull back from dining out. Meanwhile, labor costs are rising at a fast clip, courtesy of minimum wage increases.

“A lot of restaurant management teams I deal with say they’ve never seen this before,” Steve West, a restaurant industry analyst with Stifel Nicolaus, said of the challenges facing the likes of Chili’s, Applebee’s and Ruby Tuesday.

Bennigan’s, owned by privately held Metromedia Restaurant Group, collapsed in a particularly dramatic fashion Tuesday. Managers of restaurants across the country were awoken by midnight phone calls telling them to shutter their stores immediately, according to interviews with several restaurant managers.

Customers and employees were left peering in windows.

“Closed for business as of Tuesday July 29,” said a paper taped to the door of a Bennigan’s on Michigan Avenue in Chicago.

Caleb Kosek, 24, showed up for his first day of work at the store only to find it locked. “Wow,” he said as he peeked into the empty restaurant.

Gerald and Elizabeth O’Boyle, who were visiting from Ontario, passed by that Bennigan’s on Monday evening and found it packed. They figured its popularity was a good sign, and decided to return Tuesday for breakfast.

“I just can’t fathom it,” Gerald O’Boyle said as he stood outside the restaurant.

Indeed, restaurant industry analysts say sudden mass shutdowns are unusual. Even the head of Bennigan’s franchisee association, Larry Briski, was caught off guard.

“I’m really surprised about it,” said Briski, who owns four outlets in Indiana.

Metromedia Restaurant Group, which is owned by billionaire John Kluge, didn’t respond to requests for comment.

Bennigan’s, which sports an Irish pub ambience and is famous for its Monte Cristo sandwich, was launched in 1976, not long after T.G.I. Friday’s pioneered the casual bar-and-grill chain concept. Bennigan’s grew along with the casual dining sector.

But in recent years, it became “just another place to go,” said Ron Paul, president of Technomic Inc., a Chicago-based restaurant consultant. “The stores got old and the concept got tired.”

And the casual dining market became increasingly crowded.

In fact, casual dining firms have expanded at a rate that _ in hindsight _ was about twice as much as necessary, Paul said. “They simply opened more stores in the last five or six years than they can support,” he said.

Economic issues over the past year have compounded the problem.

Food inflation has raged at rate not seen since at least the early 1990s. Meanwhile, the minimum wage, which helps set a floor for some restaurant wages, has been raised in several states and on a federal level.

At the same time, consumer demand for restaurant meals has dropped because of the weak economy. All restaurants have suffered, but casual dining outlets have been hit considerably harder than fast-food companies, analysts said.

“What we are seeing is people trading down (from casual sit-down chains) to fast food because it’s cheaper,” restaurant analyst West said. It’s easier for consumers to trade down nowadays because fast-food companies have improved the quality of their menus, said West and other analysts.

West said he sees no change in the near term economic outlook for the casual dining sector.

The stock market seems to reflect that. Shares of several publicly traded casual dining companies, including Ruby Tuesday and the firm that operates Applebee’s, are trading near their lowest levels in the past 12 months.

Two major restaurant operators, including the one that owns the Bakers Square and Village Inn chains, preceded Bennigan’s and Steak & Ale into bankruptcy earlier this year.

And what happened Tuesday at company-owned Bennigan’s outlets will be repeated, though perhaps not on such a grand scale, analysts said.

“There’s going to more closures,” Paul said.


(Chicago Tribune reporters Melissa Patterson and Jeremy Gorner contributed to this report.)

© 2008, Chicago Tribune.

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