Why Are So Many Restaurants Closing in 2024?

You’re not mistaken if you’ve noticed an uptick in restaurant closures this year.?

Red Lobster, TGI Fridays, MOD Pizza, Tijuana Flats, Boston Market, Applebee’s, and Outback Steakhouse are just a handful of fast-casual chains that have closed locations this year. So what’s been the breaking point for these restaurants??

Several factors have contributed to the closed locations, including:?

Economic Challenges: Inflation, rising food costs, and higher wages are squeezing profit margins. The pandemic also exacerbated any financial troubles restaurants were already experiencing. Many chains have struggled to balance these increasing expenses with maintaining affordable prices for customers. The following excerpt from CBS sums up how I think most consumers are feeling:

“Kevin Roberts remembers when he could get a bacon cheeseburger, fries, and a drink from Five Guys for $10. But that was years ago. When the Virginia high school teacher recently visited the fast-food chain, the food alone without a beverage cost double that amount.

Roberts, 38, now only gets fast food "as a rare treat," he told CBS MoneyWatch. ‘Nothing has made me cook at home more than fast-food prices.’”

The article continues, “Between 2014 and 2024, Popeye's, Jimmy John's, and Subway hiked their food prices 86%, 62% and 39%, respectively. The price of a two-piece chicken combo at Popeyes jumped from $6.49 to $11.39 over that period, while an eight-inch club tuna from Jimmy Johns rose from $5.75 to $9.10, according to FinanceBuzz”.

Labor Shortages and Poor Service: Ongoing labor shortages make it difficult for restaurants to staff their locations adequately. The competition for workers has driven up wages, adding further financial strain.

As a result of short staffing, Dairy Queen closed its New Ulm, MN store that had been open for 70 years. Local reporting by The Journal says there were only five people working at the location before it finally shut down.

The Baltimore Watchdog reported that several Bojangles operations were operating with poor service toward the end and some employees weren’t receiving paychecks (which sounds like what happened at several Boston Market locations, too).?

Shifts in Consumer Behavior: The pandemic also accelerated changes in dining habits, with more consumers opting for takeout, delivery, or cooking at home. This shift, as well as the increase in hybrid work, has reduced foot traffic in some restaurant locations.

Increased Competition: The rise of ghost kitchens and delivery-only services has intensified competition. These models have lower overhead costs, making it hard for traditional restaurants to compete.

Sector Blur: Retail, supermarkets, restaurants, and convenience stores ALL sell prepared food now. In prior decades, consumers could only rely on restaurants for a quick bite to eat.?

Supply Chain Issues: Disruptions in the supply chain continue to affect the availability and cost of ingredients, leading to inconsistent menu offerings and higher operational costs.

Debt and Financial Instability: Many chains took on significant debt to survive the pandemic, and now face challenges in managing and repaying those debts amid a slow recovery.

According to an article by The Takeout, this was the case for Boston Market.?

“The chain was sold to the management company Rohan Group in 2020 and has had a slow demise since then. Last year, the brand was sued for more than $11 million in unpaid bills to US Foods.”

Real Estate Costs: Rising rents and real estate costs, particularly in prime locations, are making it financially unsustainable for some chains to maintain their physical locations.

So what can operators do to stay afloat amid all of these conditions? Here are some strategies from FSR Magazine:?

• Embrace technology to optimize operations – Implement digital solutions for ordering, reservations, and customer engagement, as well as back-end systems for kitchen and inventory management.
• Prioritize sustainable and ethical practices to align with consumer values – 82 percent of consumers want brands to support sustainable practices, and 84 percent of customers say poor environmental practices would alienate them from a company.
• Be innovative with your menus – Restaurants should regularly update their menus to reflect current food trends, dietary needs, and consumer preferences, including plant-based options and specialty cuisines.
• Enhance guests’ dining experiences – When restaurants create unique and immersive dining experiences, they attract customers and encourage repeat business. This includes themed dining environments, interactive meal preparations, and personalized service.
• Elevate quality and compliance management programs – Utilize intuitive digital systems for continuous monitoring and improvement of quality control to maintain compliance with health and safety regulations, manage supplier relationships, and ensure consistent quality across multiple locations.?

On the flip side, not all closures point to trouble for brands though. Some closures may be due to the strategic re-organization of a company, whether they’re changing markets or looking at underperforming stores. For example, In-N-Out closed its Oakland, CA location – the first closure for the brand in 76 years. According to a statement from the COO, the closure came due to continuing issues with crime in the area – customers and employees alike were experiencing robberies, car break-ins, and other crimes. In most cases though, the factors listed above are more often the culprit.?

If you’re a restaurant owner and are navigating a closure, TAGeX Brands can help. We created a step-by-step guide that helps operators navigate the steps associated with change management. Send me a message and I’d be happy to send it to you personally.?