When TGI Friday’s declared bankruptcy, it was just the latest restaurant chain to run up the white flag in 2024. Red Lobster filed Chapter 11 before that and Denny’s, while not declaring bankruptcy, is closing 150 restaurants to shore up its finances.
Alfred Goldberg, chief brand strategist at Absolute Marketing Solutions, says the last few years have been a unique time in the industry.
“The recent wave of restaurant chain bankruptcies, including TGI Fridays, reflects a combination of economic pressures and evolving consumer preferences rather than a single cause,” Goldberg told ConsumerAffairs. “While the economy has stabilized somewhat since the pandemic, restaurant chains are still grappling with several unique challenges.”
One of them is inflation. According to the Consumer Price Index, “food consumed away from home,” which is the category for restaurants, prices have risen each month this year. Menu prices were up 0.3% in September and have risen 3.9% during the last 12 months. That’s not great for business.
Predictable and complex
Scott Stuart, the CEO of the Turnaround Management Association, says the TGI Fridays bankruptcy is both predictable and complex.
“Although a popular brand and one that likely still has some cash, what will be most telling in this restructuring is the approach on re-capitalization, a potential sale and what they do to make changes to counter the issues they claim were the cause of this decision, primarily capital structure, and post-pandemic stress and inflation,” he told us.
If those were the drivers of the bankruptcy, Stuart says the business fundamentals need to be carefully reviewed.
Zach Goldstein, CEO of Thanx, a brand loyalty software company, says 2024 has been a wake-up call for much of the restaurant industry.
“Many restaurants are over-investing in third-party delivery and rote discount programs,” he told us. “Our data shows this actually reduces customer lifetime value. The most successful brands are focusing on first-party digital channels and building genuine loyalty through personalization and exceptional experiences.”
‘Longstanding structural issues’
“Chains like TGI Fridays and Red Lobster have had longstanding structural issues that recent economic shifts have only exacerbated,” Bob Vergidis, founder of pointofsale.cloud, said. “These brands have struggled to adapt to changing consumer preferences and are now feeling the impact of years of underinvestment in innovation.
Goldberg agrees, suggesting that TGI Fridays, which was established in the 1960s for young baby boomers, faces an economic problem caused by changing demographics.
“Younger people are looking for a different kind of experience,” he said. “They want the ‘discovery’ and to be able to ‘introduce’ a new concept, item, or venue to their social media audience. Few people have ever impressed anyone on social media by posting from a chain.”
Vergidis adds that large restaurant chains have often responded slowly to evolving customer needs, relying on outdated business models. This lag, he says, has created vulnerabilities that are more pronounced in today’s fast-changing landscape.
“Gen Alpha and Gen Z are transforming the dining scene with a preference for tech-driven, unique experiences,” Vergidis said. “Brands that fail to appeal to these new generations risk falling out of favor quickly.”