Some restaurant chains fail, others thrive post-recession

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Susan Valot/KPCC

The Veggie Grill, based in Manhattan Beach, is a small restaurant chain that is expanding post-recession.

It seems that every few days, the economy swallows up another restaurant chain. But while some fail, others are thriving in the post-recession landscape.

On a recent weekday, the Cal Poly Pomona student-run Restaurant at Kellogg Ranch is closed. That’s not fallout from a corporate bankruptcy. The restaurant that sits on top of a campus hill always closes between quarters.

Upstairs, professor John Self is in his office. He teaches hospitality and studies why restaurant chains fail – something we’ve seen a lot of lately, with Claim Jumper, Daphne’s Greek Café and other chains declaring bankruptcy.

"Most of the chains that we see fail do not change," Self says. "They are absolutely content with rolling along, just like Blockbuster was, just like some of the other chains that are now in trouble. They didn’t change."

Want a taste of an economy gone sour? Self says just watch how customers have changed their dining habits.

"From a nice fine dining to a Chili’s, from Chili’s to an Applebee’s, Applebee’s to a Denny’s, that type of thing. And they’re being more selective on what they’re eating," Self says. "They’re still going out, I think, frequently but they’re not doing as, they’re not spending as much. The check average has gone down."

Restaurant insiders say business is picking up – too late for some restaurant casualties. But Daniel Conway of the California Restaurant Association says not all dining spots forced into bankruptcy are cooked.

"Yes, in some instances, a bankruptcy is the demise of a company, but perhaps just as often, a bankruptcy is also the rebirth of a company," Conway says. "And so I think particularly now, as you’re starting to see companies reposition themselves for an expected economic upswing, they are trying to get the debt off their books. They’re trying to kind of streamline their operations so that they can be positioned to access capital when the time comes and then employ it effectively so that they can hire people, so they can add units and so that they can grow."

As restaurants close their doors, Self says those same doors often re-open with new names and new management.

"There’s going to be a lot of restaurant locations that are prime," he says. "And so the restaurant chains that can possibly do well, have some money that they’ve saved are going to go ahead and buy these things up because the low interest rates and because these locations are available."

Self says many chains are opening “fast casual” restaurants in those locations. That’s where you place your order and pay before your food is delivered to your table.

"You’re seeing Gordon Biersch start opening Biersch’s Tavern. You’re seeing Denny’s open a Denny’s Café," Self says. "So they’re all going into this kind of segment because it’s comfortable, it’s fairly inexpensive to open and customers seem to really like it."

Plus, you save on labor because there’s no full-service staff.

The Veggie Grill is one of those growing “fast casual” chains. The small, vegetarian-but-tastes-like-real-meat chain started with a single restaurant across from UC Irvine five years ago. T.K. Pillan is one of the co-founders.

"At that point in time, when we first opened, all restaurant groups were expanding and so it was very tough to get locations and we were an unproven concept at that point in time and so that was the first location that became available to us," Pillan says. "It was next to a Trader Joe’s, which is synergistic to us and so that’s the reason that we took it. But we didn’t have a lot of choices back then."

Since then, The Veggie Grill has grown to five restaurants. Number six opens in Torrance this month. The Veggie Grill plans an additional location in the next few months.

For Pillan, it’s perfect timing as weaker chains leave good locations behind.

"The biggest thing we look at is location because we know we’re doing great in the locations we have now, but if we were to take on a location that wasn’t synergistic with who we are and what we serve, then we’d be in trouble," Pillan says. "So we really have to be careful about our locations."

He says it’s a balancing act between snatching up great locations so you can grow – and not growing too fast and dropping your standards. It’s a balancing act that hospitality experts say can be garnished with success, if you can find a niche and do it well.

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