The COVID-19 pandemic, labor shortages, rising food and labor costs, and shifts in dining preferences have all contributed to a slew of restaurant chain bankruptcies.

Major Restaurant Bankruptcies and Closures

Several national and regional restaurant chains declared bankruptcy in recent years, signaling broader financial struggles in the industry.

  • Red Lobster filed for Chapter 11 bankruptcy in 2024, citing rising costs and declining customer traffic. The chain closed 99 locations as part of its restructuring plan. The restaurant is now trying to win back consumers.
  • TGI Fridays closed 36 underperforming locations before filing for Chapter 11 bankruptcy in late 2024, reducing its nationwide presence to 163 locations.
  • Ruby Tuesday, California Pizza Kitchen, and Chuck E. Cheese have also navigated bankruptcy proceedings in recent years.

Key Factors Contributing to Bankruptcies

Several economic and industry-specific factors have driven these restaurant closures, including rising food and labor costs, real estate challenges, changing consumer preferences, and competition from fast casual and quick service chains.

Since 2020, ingredient prices have increased by nearly 29%, forcing restaurants to raise menu prices, which in turn has discouraged customers from dining out. This past summer, we saw fast food chains trying to compete on value with limited-time promotions. The average restaurant wage has risen significantly, from $10.90 per hour in 2019 to $17.11 per hour in 2024, putting additional strain on profit margins. To make matters worse, commercial rents have increased, and shopping malls are moving toward housing local and regional restaurants over national chains.

Consumer preferences have also shifted. More people are opting to cook at home due to grocery store promotions and lower prices on staple ingredients. And younger generations, particularly Millennials and Gen Z, seem to be gravitating toward more affordable and convenient dining options.

Strategies for Survival and Growth

Despite these challenges, some brands have found ways to adapt and remain competitive:

  • Menu Innovation – Chains like California Pizza Kitchen have refreshed their menus and introduced non-traditional dining experiences, such as vending machines and virtual brand partnerships.
  • Targeted Expansion – Brands like Portillo’s and Buddy’s Pizza have focused on regional markets where they already have strong customer loyalty.
  • Subscription and Loyalty Programs – Chuck E. Cheese introduced a subscription-based Fun Pass to encourage repeat visits and increase customer engagement.
  • Embracing Technology – Digital ordering, artificial intelligence-driven promotions, and app-based discounts (like McDonald’s McValue platform) are helping chains maintain customer interest.

The Future of the Restaurant Industry

Experts predict that more restaurant chains may close or restructure in the near future. As the landscape shifts, restaurants must find new ways to attract customers while maintaining sustainable business models.

In the Classroom

This article can be used to discuss supply and demand (Chapter 1: The Dynamics of Business and Economics) and the product life cycle (Chapter 12: Dimensions of Marketing Strategy).

Discussion Questions

  1. Describe how consumer dining habits have changed.
  2. How can casual dining chains (e.g., Red Lobster) compete with fast casual (e.g., Chipotle) and quick service restaurants (e.g., McDonald’s)?
  3. What strategies have restaurants adopted to remain competitive?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.