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Dive Brief:
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TGI Fridays filed for Chapter 11 bankruptcy protections in the North District of Texas on Saturday, according to a press release, citing the long impacts of COVID-19 and its capital structure.
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The filing followed weeks of unit closures, a bondholder coup against management and years of executive turmoil as the brand failed to gain sales momentum following the pandemic.
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Fridays is the latest casual dining chain to close large numbers of units or seek bankruptcy protections in 2024 as consumers have retreated from some types of discretionary spending.
Dive Insight:
In the year leading up to the bankruptcy filing, TGI Fridays’ sales fell by 15% due to unit closures and weaker average unit volumes, according to a court document filed by the chain’s Chief Restructuring Officer, Kyle Richter, who was appointed to his post Nov. 1.
The brand undertook a variety of measures to stem the sales slide, from its deployment of C3’s virtual brands to the launch of its Grilled and Sauced menu in 2023. The chain also looked at alternate real-estate strategies, with a particular focus on capital-light expansion at hotels.
The chain also launched “a new value menu comprised of 10 full meals starting at $9.99, a ‘happy hour’ program, direct mail offers, and new, compelling loyalty offers,” Richter said. Consumer price sentiment regarding the brand improved by 15 percentage points in the second quarter compared to the first quarter.
Still, as consumers became more price-sensitive, Fridays publicly traded competitors, like Chili’s, were able to draw on larger resources to alert consumers to value meals.
“[Fridays] had much more limited resources to market on a national scale and lost market share as a result,” Richter wrote.
In September, the company’s bondholders seized many of its assets, including restaurant royalties, after Fridays violated the terms of its bond covenant. That manager termination event put a stop to Fridays’ proposed $220 million merger with UK franchisee Hostmore, which would have included a shift to a fully franchised model.
As a result of the bondholders’ moves, Richter said, “[Fridays] lost a significant portion of its revenue stream as the Company would no longer receive the benefit of the restaurant royalty payments.”
Additionally, Fridays’ U.S. unit count fell steeply in recent years, from 329 at the end of 2020 to 161 at the time of the filing. Most of the closures this year have been company units. According to the chain’s franchise disclosure document, Fridays operated 140 of its U.S. restaurants at the start of the year. As of the filing, it operated just 39.