Pizza chain Sbarro, known for its presence in malls across the U.S. and the world, filed for its second Chapter 11 bankruptcy on Monday, only three years after their previous bankruptcy in April of 2011.
This fast food pizza chain is struggling with significant debt, which could be linked to less mall traffic than ever before. Lenders will be taking control of Sbarro under a “pre-packaged” Chapter 11, which means that they already agreed on a reorganizational plan with the creditors that hold 98% of the company’s debt. This plan should quickly shed their estimated $140 million in debt and will allow them to make a “quick exit” from the bankruptcy by May 7th, 2014.
Less than three weeks ago Sbarro was forced to shut down more than 40% of their North American Company owned stores. The company has recently closed 180 of their money-losing restaurants and expects to close another 50 of their weakest locations in the coming weeks. These closings leave the company with 220 U.S. Company owned locations, 2,700 employees, and over 600 other locations owned by franchise operators in 40 different countries. Sbarro has said that their bankruptcy will not affect the restaurants owned by franchisees. The company reported assets of $175.4 million and liabilities of $165.2 million. They are planning to shed $140 million of secured debt in the reorganization.
What Went Wrong?
In 2011, they filed forChapter 11 after they tried to boost sales by revamping their menu and shutting down their slow performing stores. Fast casual restaurants are booming recently, with the likes of including Chipotle (NYSE: CMG) and Panera (NASDAQ: PNRA) soaring, however, Sbarro has struggled to stay afloat.
Some link their decline to the fact that their food sits out for long periods of time. People are responding well to Chipotle’s business model of making the food in front of you with constantly cooking in the background. People want to see that their food is being made fresh and isn’t just sitting around waiting for someone to eventually put it on a plate. It is also important to note that Food court spending is also down, and food courts are where the majority of Sbarros are located. It seems their business model is outdated and is in dire need of a total remodel to keep up with the times and trends.