By Adham McGuire,
Money and Investing Writer
The new sweeping trend of health conscious eating, even in the fast food industry, has pushed debt ridden restaurants like Sbarro and Quiznos to bankruptcy.
In both cases, the companies have been struggling for a number of years now. Quiznos has a debt of $626 million. The principle reason the company is filing for bankruptcy is to reduce debt and restructure the relationships between the company and its franchise owners.
By filing for bankruptcy, Quiznos will effectively shrink its debt by $400 million. Sbarro filed for bankruptcy in 2011 and has made very few changes.
Perhaps the company’s only chance of recovering will be a reformation of the mall food-court model in an attempt by malls to increase foot traffic. The same reason Sbarro is struggling could be the reason that saves the company; however, at this time, that is wishful thinking.
There was a time when these companies were profitable, but now both cannot compete with the newer competition that reaches demographics that used to go to Quiznos or Sbarro.
As with any industry where companies are making profits, more companies are going to enter the fast food industry.
Without continued changes to maintain customer interest and combat losing market share, companies like Sbarro and Quiznos wait too long to fix the problem
According to Guardian News and Media, Associate director Mariola Borysiak who follows the food industry for Standard and Poor’s says, “Customers are looking for value because of high unemployment and the weak economic recovery, but they don’t want to compromise quality. The [chains] that offer high quality will be the winners.” There lies the problem for Sbarro where the food is not exactly sought after, it just happens to be a better option than most other mall food. In this economy, that is a recipe for disaster.
In the case of Quiznos, the sandwich company is being beaten out by the mass appeal of Subway with its health initiatives and celebrity endorsements.
There is also a problem of placement. Most Sbarro restaurants are located in shopping malls. In this time of financial distress, the amount of people in shopping malls has actually caused a decrease in purchases.
A fact that has directly correlated to the balance sheet for Sbarro, as this is the company’s second time filing for bankruptcy in almost as many years. Quiznos suffers from the same placement problem.
According to Bloomberg, “High unemployment affected Quiznos’ stores, which are found primarily in office plazas and “high-end” shopping malls.”
Now Quiznos and Sbarro find themselves in a position where both must figure out ways to progress and become competitive again.
Quiznos has released a more scripted plan that starts with the courts allowing the company to get a $15 million loan from its senior lenders to accelerate the company’s recovery from the bankruptcy process.
According to Forbes, Quiznos CEO Stuart Mathis stated that the company’s goals include, “reducing food costs, implementing a franchise owner rebate program, in certain circumstances making loans available to franchisees for restaurant improvements, investing in advertising to improve location awareness, and providing new incentives for prospective franchisees.”
These initiatives, along with a two-thirds debt decrease should be enough to bring Quiznos back from such dire straits.
As for Sbarro, it would be beneficial to follow Quiznos in an attempt to improve brand elevation, location awareness, and product pricing. This would be a great attempt to help revive the company.
Hopefully both of these companies will be able to solidify a business plan that helps each company flourish in the fast food industry and climb out of bankruptcy.
A version of this article appeared in the Tuesday, Mar. 25 print edition.
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