San Antonio-based Buffets, LLC filed for bankruptcy in April 2021, among the latest in a string of restaurant bankruptcies nationwide. As the restaurant and hospitality industries struggle to recover from the COVID-19 pandemic nationwide, construction businesses caught in their wake continue to experience impact from the financial fallout.
The National Restaurant Association’s January 2021 State of the Restaurant Industry report displayed the damage caused during 2020, and Ohio Restaurant Association President and CEO John Barker echoed the report’s sentiment: “The last year has been a rollercoaster. Lots of ups and downs, but the downs have been significant, and the ups have been small little victories we’ve had along the way.”
Notably, the industry ended 2020 with sales $240 billion below pre-pandemic projections, with over 110,000 places of business closed permanently and nearly 2.5 million jobs less than prior to the pandemic.
The pandemic’s impact on restaurant businesses has driven delays and disputes among construction companies in the hospitality sector as well. In January 2021, MRI Food Hall in Minneapolis filed for bankruptcy with dozens of contractors on their debt rolls.
In early March 2021, pandemic-driven construction delays led to $41 million in mechanics lien claims on the American Dream mall complex in New Jersey. The shopping center filed a lawsuit against Villa Restaurant Group over its role in the contractor disputes.
Amid continuing efforts to revitalize the economy in 2021, individual companies and large corporations alike are still struggling. San Antonio-based Buffets, LLC filed for Chapter 11 bankruptcy on April 20, 2021 — jeopardizing the future of popular national chains such as Old Country Buffet, Ryan’s, and Hometown Buffet.
Buffets, LLC’s 14 affiliates also filed for bankruptcy on the same day, citing a number of challenges as part of the petition — chief among them a severe drop in sales in 2021.
Prior to 2020, Buffets, LLC and its affiliates operated 90 restaurants in 27 states. However, shelter-in-place orders and restrictions on restaurant operation placed heavy emphasis on takeout and delivery within the food service industry, causing significant difficulty for businesses which focus on self-service.
Downturns in the state of the pandemic provided even more difficult for the normal operations of Buffets, LLC’s affiliate chains, as illuminated by the Center for Disease Control and Prevention’s December 2020 guidelines for restaurants and bars:
“Avoid offering any self-serve food or drink options, such as buffets, salad bars, and drink stations. This limits the use of shared serving utensils, handles, buttons, or touchscreens and helps customers to stay seated and at least 6 feet apart from people who do not live in their household.”
Declines in sales forced the company and its affiliates to close all of their family-style buffet locations, leaving only six Tahoe Joe’s Famous Steakhouse locations in California still in operation.
Buffets’ bankruptcy petition lists assets of less than $10 million and liabilities between $50 million and $100 million. Documents further list the company’s top 20 unsecured claims, which total $57,688,052.54, while also noting that it has over 200 total creditors.
Though there are long-term concerns with Buffets, LLC’s sustainability exiting the pandemic, Chapter 11 bankruptcy is commonly referred to as “reorganization” bankruptcy — most often, it is used to provide a company with the ability to restructure itself, allowing a debtor to maintain its business and develop a plan to pay its creditors over time.
“This is clearly going to be a difficult year for the construction industry. Demand looks likely to continue shrinking, projects are getting delayed or canceled, [and] productivity is declining.”
– Stephen Sandherr, Chief Executive, Associated General Contractors of America
Bankruptcies, construction debt continue to rise in 2021
As the restaurant industry has struggled and declined since the start of the pandemic, construction contractors in the sector continue to feel the effects. Recent Levelset reporting has indicated a rise in construction debt and related bankruptcies, with large national chains heavily impacted.
State and federal government regulations intended to curb the spread of the pandemic unfortunately contributed to the restaurant industry’s stresses. A recent report out of Minneapolis-St. Paul revealed that 94 restaurants across the area have closed during the pandemic, and many have not yet reopened.
The timing of this report directly correlated with the State of Minnesota closing restaurants for four weeks — just as 83% of Minnesota managers surveyed by the Associated General Contractors of America (AGC) showed significant concern that the pandemic would continue to hurt projects, workers, and supply chains as 2021 continued.
AGC Chief Executive Stephen Sandherr recently spoke with caution regarding 2021’s outlook for contractors. “This is clearly going to be a difficult year for the construction industry,” Sandherr said. “Demand looks likely to continue shrinking, projects are getting delayed or canceled, productivity is declining, and few firms plan to expand their head count.”
Jason Kemp, co-founder and CEO of VitaNova Brands — which manages operations for affected brands Tahoe Joe’s and Furr’s Buffet — made a more confident statement regarding the future of Buffets’ affiliate restaurants.
“As with almost every one of our peers, buffet restaurants took the brunt of the loss of sales during the pandemic and as such, the path to success requires hard choices to be made, including the rationalization of our overall footprint,” Kemp said.
“The precipitous decline in sales at the restaurants resulting from occupancy restrictions and the banning of family-style buffet dining forced the companies to take extraordinary steps, including the closing of multiple locations,” Kemp continued. “We are looking forward to emerging from bankruptcy as a stronger operator with a focus on the Tahoe Joe’s and Furr’s AYCE Marketplace banners. These great brands serving great food will create a platform for future growth.”
Despite the tenuous nature of any bankruptcy petition, Buffets, LLC is no stranger to Chapter 11 reorganization — in fact, this is the fourth bankruptcy action filed since 2008 for some of the included affiliate restaurants. During its last restructuring in March 2016, Buffets pointed to not only declining revenue, but also costly litigation as a reason for its struggles.
Though this most recent filing is not Buffets, LLC’s first brush with bankruptcy, the trend of its financial difficulties still points in a concerning direction. Its reported debts have remained within the $50 million to $100 million range between its 2016 and 2021 filings, but as compared to the company’s 2016 listed assets of between $10 million and $50 million, its current assets of less than $10 million show the possibility of significant decline.
Hospitality bankruptcies expose construction payment disputes
Unfortunately, the difficulties for both the construction and hospitality industries have seemingly become intertwined in the past year, with a rash of Chapter 11 bankruptcy declarations connected to non-payments on construction.
The May 2020 Chapter 11 bankruptcy of CraftWork Holdings, operator of Logan’s Roadhouse and Old Chicago Pizza & Taproom, came on the heels of the pandemic, plus at least three liens filed against Logan’s Roadhouse locations in Florida and Tennessee. April and May of the same year also saw liens filed against Panera Bread and Boston Market, respectively.
At the time of its December 21, 2020 Chapter 11 filing, “entertainment” restaurant chain Punch Bowl Social had a minimum of 25 active mechanics lien claims against four different locations, totalling a staggering $3 million in unpaid construction work.
So far, these difficulties are holding steady in 2021. February 21, 2021 saw Illinois and Missouri Jack in the Box owners Illinois Jack, LLC and Missouri Jack, LLC file for Chapter 11 protection while in debt to 17 construction-related companies. Alamo Drafthouse Cinemas, LLC did the same on March 3, 2021 while simultaneously facing multiple mechanics liens over non-payment for its theatre expansions — leading to construction stopping permanently on at least one new location.
Aside from Buffets LLC, Levelset reports eight additional hospitality bankruptcies* in the second half of April 2021 alone:
- Aarna Hotels, LLC – April 29
- Crestwood Hospitality LLC d/b/a Holiday Inn Express & Suites Tucson Mall – April 20
- Grill Concepts – April 28
- JMP Hospitality – April 20
- Newstream Hotel Partners-LIT, LLC – April 16
- Sri Vari CRE Development, LLC – April 29
- Urban Commons, LLC – (Chapter 7 bankruptcy) April 29
- Water Marble Holding, LLC, – April 28
*Voluntary Chapter 11 petitions except where noted
Given these struggles, 2021 has not been forecast to include a quick recovery for the hospitality industry. Though US restaurant sales are projected to rise 11% to $731.5 billion in 2021, this number is still a far cry from 2019’s $864.3 billion — likely pushing the food and dining sector’s full recovery back to 2023 or 2024, per the American Restaurant Association.
Though contractors avoided much early struggles during the start of the pandemic — as construction projects have been viewed as essential business — concerns that the restaurant industry’s decline would affect that of construction are slowly coming to fruition.