Large Chain Restaurant That Has Gone Bankrupt

Chain Restaurant

One chain restaurant that went bankrupt recently was Bennigan's, which filed for Chapter 7 bankruptcy in 2008 (Tozzi, 2008). All of the company-owned stores closed, and many of the franchise-owned stores also closed. Of those franchise-owned stores that survived, many suffered as a result of the negative publicity and loss of key advertising and purchasing support. While 138 locations avoided bankruptcy initially in 2008, only 35 of those remained by 2010 (Stockdale, 2010). This paper will examine the external environment in the casual dining industry at the time of the Bennigan's bankruptcy, and the extent to which the company's strategy contributed to its downfall.

In 2008, the U.S. economy was headed for recession, and this has a significant negative impact on the casual dining industry. The industry had 81,000 restaurant locations, making for a highly-fragmented marketplace that was in all likelihood well over capacity. As a result, some failures were inevitable. Chain restaurants have some benefits that should help insulate them from economic downturn better than individual operators -- brand recognition, common marketing strategy, and enhanced purchasing in particular (Goldberg, 2012).

However, Bennigan's failed because it had few strengths, and the strengths that it did have were insufficient to address the challenges of sharply declining demand and an intensely competitive market. The Bennigan's name is the biggest advantage that the company would have had, but this strength is not as powerful as the brands of dozens of other larger, better-established and better-supported competitors.

Moreover, Bennigan's had a large number of weaknesses. The name is weak and undifferentiated, and the same can be said for the menu. The food quality was generally poor and not correlated sufficiently with the prices. In addition, the company likely had poor service standards as well. These are all common reasons for casual dining restaurants to fail (Horovitz, 2008). With relatively poor management, confused by the corporate store/franchise store split in the organizational structure, Bennigan's was not in a good position to address these challenges.

Externally, the reality is that the environment was very challenging. With demand slumping and the industry over capacity, it was almost inevitable that somebody in the industry would fail (Ibid). This is doubly true given that the economic situation was at its outset, and was expected to only get worse for the next couple years. A difficult environment with no expectation of recovery in the near future was enough to condemn most weak operators in the casual dining space.

In order for Bennigan's to succeed with its existing strategy, the strengths of the company would have had to align themselves up with an opportunity in the marketplace, or the weaknesses of the company would have had to not be related to the threats in the environment. In this case, there really are few opportunities in the market at the outset of a recession. Even international markets were showing signs of economic malaise. In a fragmented market, there is always opportunity to win market share from competitors, but only if you have advantages that they do not have. Most of Bennigan's advantages are shared by its chain competitors, and most of those competitors have stronger advantages.

Worse, Bennigan's weaknesses were the type of weaknesses that would hurt the company, given the threats in the environment. If the company has mediocre food, uninspired spaces, a relatively generic brand and indifferent service, then it has nothing to differentiate itself from its competitors. As demand shrinks, all firms are likely to feel the pinch, but other firms are better positioned to retain their customers, and to compete on price, which is something that many firms in the casual dining space did in response to the economic situation. Bennigan's simply did not have the ability to compete on price and was unable to compete on service, brand strength or food quality. Without a source of competitive advantage or a clear point of differentiation, Bennigan's was vulnerable if it had a poor financial position. It had a poor financial position, so it was unable to weather the difficult external environment.

Bennigan's could have anticipated that in difficult financial circumstances, its competitors would move to enhance brand loyalty and would also compete more vigorously on price. However, Bennigan's either did not anticipate these moves or was unable to respond in an effective manner. The company had few resources that would have helped it to succeed -- there is no evidence that it had the right people, a strong brand or any sort of tangible assets. Its restaurants tended to be in run-down spaces, competing in an industry where the most successful firms were spending to update their spaces.

For Bennigan's to survive, it would have needed a complete operational overhaul. The first step would have been to give the firm some real leadership, and a vision of what Bennigan's is. The company needed something that both customers and staff could have recognized as its core mission -- the way that Applebee's has its neighborhood theme. Having a sense of mission assists employees to implement strategies. Bennigan's needed leadership in order to be proactive in addressing challenges. It folded in part because it knew that there was little to be done once the recession had already hit.

A proactive strategy would have been to keep the physical space and the menus up-to-date, as there was little about the Bennigan's dining experience that was attractive to modern consumers. The company should be upgraded the brand image as well, perhaps with a new logo and a promotional campaign that emphasized a fresh approach by the company. The company would also have needed a more extensive training process to indoctrinate employees in a corporate culture that emphasized service and the dining experience.