Reuters reports a United States bankruptcy judge has approved Sbarro Incorporated Chapter 11 bankruptcy plan and will allow the fast food pizza chain to move forward with their Chapter 11 bankruptcy, the second bankruptcy the ailing restaurant has filed in three years.
Under the new Chapter 11 bankruptcy plan, Sbarro Inc. should be able to reduce its $148 million debt load to $20 million, an 85% drop. The court order was signed and approved by Judge Martin Glenn of the Manhattan bankruptcy court.
Sbarro Incorporated, which is primarily located in shopping mall food courts, was founded in 1956 in Melville, New York. Like many other fast food restaurants, over the past several years they have tried various strategies to improve sales, including updating their menu options and offering more choices to draw customers who frequent other types of restaurants such as Chipotle Mexican Grill Inc. and Panera Bread Co. Strategies have had limited success, due in part to what experts claim is an “unprecedented decline in mall traffic.”
Sbarro closed hundreds of restaurants
Implementing new sales strategies was not enough to save Sbarro. In fact, those close to the case said that an unsustainable balance sheet made it necessary for the pizza chain to survive. The restaurant also closed hundreds of restaurants throughout the United States and finally declared bankruptcy in March 2014.
Sbarro Inc. explored the option of auctioning some of its assets, which drew no bidders. They also worked with some of their creditors to create a “prepackaged restructuring plan” through Chapter 11 bankruptcy. When the auction did not draw interest Sbarro went forward with their plan to file Chapter 11 bankruptcy.
Under the proposed Chapter 11 bankruptcy deal the company will renegotiate certain leases, close more stores, pay their creditors an estimated $1.25 million and decrease their loan to equity ratio. There are an estimated 800 Sbarro locations worldwide, but the struggling pizza chain has already closed an estimated one-hundred and fifty-five of its four hundred locations in the United States.
Competition in fast food market is strong
Competition within the fast food market has always been fierce. Sbarro Inc. competes not only with other pizza business, which are more popular, but also with other fast food options. Consumers have also started to gravitate towards “new and fresh” dining experiences forgoing preheated pizza that may taste only slightly better than frozen pizza. Instead, diners have started eating at new restaurants that offer a more complete dining experience such as Chipotle, Five Guys and Panera.
Sbarro Inc. will need to emerge from Chapter 11 bankruptcy with new ideas and strategies to draw in today’s diner by offering menu options which move beyond a pre-heated pizza slices to something that cannot be found at other restaurants five feet away in the mall food court.