Bennigan's brand to carry on after parent's bankruptcy: experts: related closures may ease competition, but others in segment could face similar troubles

Nation's Restaurant News, August 11, 2008 by Ron Ruggless

Plano, texas -- Franchisees of the 30-year-old Bennigan's Grill & Tavern brand are vowing to soldier on despite their long-time franchisor's filing for Chapter 7 bankruptcy liquidation and closure of its Bennigan's and Steak and Ale restaurants.

Metromedia Restaurant Group filed liquidation petitions in court for S&A Restaurant Corp. and affiliates July 29 as MRG shuttered about 200 restaurants, though that left as many as 138 franchised Bennigan's still operating.

The bankruptcy by S&A--a company that's part of the influential legacy of industry legend Norman Brinker, who founded Steak and Ale 40 years ago--was a "sad commentary on the current health of the U.S. casual-dining segment," said John Glass of Morgan Stanley Research.

However, the shuttering of nearly 200 full-service restaurants helps the "industry supply and demand dynamics" by reducing a glut of such eateries at time when many are suffering falling sales amid the struggling economy, Glass added.

"The closure will benefit remaining players, including Chili's, Applebee's and Ruby Tuesday, as well as specialty chains like Red Robin," Glass said.

Owners of the still-operating Bennigan's branches, 80 in the United States and 54 abroad, were optimistic that new brand overseer Atalaya Capital Management, which brought in CRG Partners to assist, would help the franchisees deal with the challenging foodservice economy. Officials of Atalaya, which has offices in New York and Atlanta, and CRG, with offices in nine U.S. cities and Vienna, Austria, held conference calls with franchisees in the immediate aftermath of S&A's bankruptcy action.

Rick Pastorek, whose BOL Inc. in Baton Rouge, La., owns six Bennigan's in Louisiana and one in Memphis, Tenn., said: "The franchisees are very committed. The brand has strength in our communities. It's been a resilient brand in spite of Metromedia Restaurant Group and the effort that they fell short of." The BOL president estimated that 134 Bennigan's and Steak and Ale restaurants were still operating.

However, the number was placed at 138 later on the same day as the S&A bankruptcy filing, after initial media reports said it was Bennigan's and Steak and Ale that had filed for liquidation. By way of clarification, a statement was issued by Bennigan's Franchising Co. LP and Steak & Ale Franchising Co. LP, saying they owned the two brands' trademarks and franchise agreements, and stressing they were not part of the Chapter 7 filing. The two entities said they would continue to support the chains' 138 domestic and international franchised restaurants, which "remain open and fully operational."

It was not immediately clear whether Metromedia, despite the Chapter 7 filing affecting corporate restaurants, still controlled the two brands' franchising and trademark entities, or whether Atalaya or such Metromedia creditors as GE Capital Solutions had gained control under the terms of lending agreements.

Regardless, Larry Briski, president of the Bennigan's Franchise Operator Association, said his restaurants in Indiana would remain "open today, tomorrow and months and years to come."

Casual-dining chains have experienced growing pressures on both their bottom and top lines recently, and weaker, older brands have been hard-pressed to stay afloat. With wholesale food prices having risen 7.6 percent last year and 8.5 percent in this year's first half, the margins of full-service restaurants have especially suffered at the same time that droves of consumers have traded down to less-expensive dining options in the face of record levels of personal debt, soaring gasoline costs and a real estate crisis.

Chris Sciortino, a director at Baird Investment Banking who focuses on middle-market consumer segments, said other restaurant companies remain at risk of failure and liquidation, especially with tight credit markets making it difficult to restructure debt.

"The concern over bankruptcy is heightened, especially at companies with a lot of leverage," he said. "They might be able to manage through this downturn over the next six months, but if we're in a prolonged weak period, the opportunity for true bankruptcies could get larger."

Sciortino said a company at risk remains at the whim of consumer spending trends and their resistance to a rebound, though no one know whether an upswing would come in six months, eight months, a year or longer.

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"I think in a situation like Bennigan's, where casual dining has been extraordinarily hard hit, its harder to envision that someone would get excited about this brand and want to turn it around," he said.

Both of Metromedia's casual-dining brands have rich histories. Bennigan's was founded in 1976, and Steak and Ale was created by Brinker 10 years earlier. Many foodservice executives began their careers working with one or both of the chains.

But difficulties for the brands became apparent earlier this year. In late May, Clay Dover, who had been MRG's chief executive since late 2007, resigned, citing "differences" with ownership about the direction of the company. Metromedia Restaurant Group is held by billionaire John Kluge's Metromedia Co. conglomerate. The Wall Street Journal in June reported that MRG had violated lending agreements with GE Capital Solutions and was on the verge of a bankruptcy action, which MRG denied.