Financial problems continue to beleaguer popular pizza chain Sbarro as it filed for Chapter 11 bankruptcy protection on Monday – its second time since 2011.
The bankruptcy filing comes despite its recent efforts to boost sales by revamping its menu offerings and shutting down its worst-performing branches. The Melville, New York-based chain announced in February that it would cease operations in 155 out 400 branches in North America, although the 600 franchises it has overseas will not be affected by the bankruptcy.
When Sbarro filed its first bankruptcy in 2011, the company managed to reduce their $400 million debt load dramatically by 80 percent. Statistical rating agency Fitch Ratings published a report last week that showed how Sbarro “has lost market share to competitors” that include Subway, Little Caesar’s and Papa John’s. The combination of rising food costs and decreased customer spending resulted in the need for Chapter 11.
The 58-year-old company plans to make a “quick exit” from bankruptcy before May 7 by leaving control over its management and operations to lenders and interested buyers. This “pre-packaged plan”, which intends to exchange Sbarro’s debt for control over the reorganized company, is subject to the court’s approval.
Sbarro, which was founded in 1956 in Brooklyn New York, went through significant changes last year. Former President and CEO Jim Greco resigned in March 2013, after only a year of being in office. He was replaced by David Karam, who previously headed Wendy’s International.
Baum + Whiteman president Michael Whiteman shared his opinion on the recent financial struggles of Sbarro. He said that the company has been following an “outdated business model”, which includes the practice of selling dishes “that has been sitting out for a while” as opposed to made to order food. Fast-casual dining has been gaining popularity lately, and restaurants like Chipotle and Panera Bread are being favored by consumers.
Another factor that has affected Sbarro’s market performance is the “unprecedented decline” in mall foot traffic and foot court spending. Since Sbarro’s restaurants in the U.S. are found in malls, the company keenly felt the effects of its inability to adjust to the consumer trends toward a slightly more upscale dining experience.
Karam released a statement saying that the recent bankruptcy filing is a “necessary step” to ensure the future growth of Sbarro.
When the company was founded by Italian immigrants Gennaro and Carmela Sbarro, it started out as a grocery store or Salumeria. The couple opened its first mall restaurant at the Kings Plaza Shopping Center in Brooklyn.