A number of iconic American retailers and restaurant chains have filed for bankruptcy in 2023 as they face a perfect storm of economic troubles including supply chain disruptions, labor shortages, changing consumer behaviors and sky-high inflation.
Rite Aid Files Chapter 11 Amid DOJ Lawsuit
Giant retailer Rite Aid filed for Chapter 11 bankruptcy protection on October 15th as it has struggled for years to compete with larger rivals like Walmart, Costco, CVS and Walgreens.
However, tough competition was not the direct cause of Rite Aid’s bankruptcy filing. Rather, it was the potential liability from a Department of Justice lawsuit filed against the company in March 2023 that forced Rite Aid into bankruptcy court.
In its civil complaint, the DOJ alleged that Rite Aid pharmacists had inappropriately filled opioid prescriptions, contributing to the opioid epidemic by “repeatedly filling prescriptions for controlled substances with obvious red flags” and “intentionally deleting internal notes about suspicious prescribers.”
Rite Aid is hoping to negotiate a favorable legal settlement through the bankruptcy process that will not cost it billions of dollars. As part of its restructuring plan, Rite Aid has already identified 178 stores that it intends to close in an effort to cut costs.
Upscale Furniture Retailer Mitchell Gold + Bob Williams Shutters All Stores
In late August, upscale furniture maker Mitchell Gold + Bob Williams revealed it was having severe financial issues and abruptly closed all 27 of its stores across 14 states and multiple Canadian provinces as it headed into Chapter 11 bankruptcy.
The company was unable to secure adequate debtor-in-possession financing, which led Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court of Delaware to force Mitchell Gold + Bob Williams into Chapter 7 liquidation proceedings.
Burger King, Hardee’s Franchisees File Bankruptcy Due to High Costs, Slow Sales
Several fast food restaurant franchisees have faced economic turbulence this year from a mix of issues including labor shortages, soaring costs and changes in consumer habits.
For example, Burger King franchise operators Meridian Restaurants and Toms King both filed for Chapter 11 bankruptcy protection in 2023, blaming high costs and disappointing sales. Restaurant industry site Restaurant Dive reported that Meridian cited rising meat costs, while Toms King pointed to increased labor costs.
In May, Hardee’s burger chain franchisee Summit Restaurant Holdings, which operated 106 locations, also entered bankruptcy. The company proceeded to either close or sell off all of its Hardee’s restaurants.
Some struggling chains have been able to shutter underperforming spots without resorting to bankruptcy filings. In June, vegan/vegetarian fast casual chain Veggie Grill closed six restaurants in California due to reduced demand attributed to hybrid work models, according to a statement by Veggie Grill CEO T.K. Pillan. The company still operates over a dozen locations primarily on the West Coast after the closures.
Vegetarian Chain Clover Food Lab Files Chapter 11 Amid High Rents
On November 3rd, Boston-based vegetarian fast food chain Clover Food Lab filed for Chapter 11 Subchapter 5 bankruptcy protection in Delaware. The filing aims to reorganize the 15-location business, which has seen sales lag pre-pandemic levels.
In bankruptcy court filings, Clover Food Lab cited the triple threat of lower than anticipated sales, high rents at certain locations, and financing troubles due to the failure of Silicon Valley Bank as reasons precipitating its bankruptcy.
Clover had intended to raise expansion capital to grow in New England and enter the New York market, but its financing plans collapsed after Silicon Valley Bank went under. The company said it was unable to negotiate sufficient rent relief from landlords at three of its restaurants that were proving unprofitable due to low traffic.
“COVID changed everything for restaurants like us,” Clover Food Lab said in a statement on its website. “The way we eat, drink, work, and get together has shifted substantially and, while Clover has seen a steady recovery in sales (and the creation of a whole new part of Clover with our meal box program) our sales are still below pre-pandemic levels.”
Founded in 2008 as a single food truck near MIT in Cambridge, Massachusetts, Clover Food Lab has expanded to 15 locations across New England. The vegetarian chain offers a rotating organic menu dictated by daily produce availability from local farms.
Bankruptcies Expected to Continue as Consumers Pull Back
With high inflation persisting and a potential recession looming, bankruptcies are expected to remain elevated for retailers and restaurants over the next year. As consumers become more cautious with their spending, discretionary and high-price purchases are often the first to go.
Already this year, major retailers like Bed Bath & Beyond, Joann Fabric and Craft Stores, and Vitamin World have entered bankruptcy. With heavy debt loads and fading consumer demand, more household names in retail are likely to follow suit.
Independent restaurants with razor-thin margins have also proven vulnerable, especially once loyal patrons cut back on eating out. The National Restaurant Association reports that over 90,000 U.S. eateries have closed either temporarily or permanently since the pandemic began.
Those restaurants able to provide diners with value, convenience, and unique offerings are best positioned to weather the economic storm. But more casual dining and upscale establishments will continue struggling with higher costs and shrinking revenues.
The next six to twelve months promise to bring further challenges for retailers and restaurateurs. But those able to adapt their business models and offerings to the new economic reality stand the best chance of surviving.