Salad restaurants such as Sweetgreen, Dig, and Cava are gaining popularity across the US. However, one chain is facing difficulties.
The owner of Tender Greens and its sister brand Tocaya Modern Mexican has filed for Chapter 11 bankruptcy.
Pandemic Impact
According to executives at One Table Restaurant Brands, the number of customers significantly dropped during the pandemic and has not rebounded since.
The company runs 24 Tender Greens and 15 Tocaya locations in California and Arizona.
Downtown Los Angeles Struggles
They rely heavily on patrons in downtown Los Angeles, where a significant portion of their customer base is traditionally comprised of office workers and residents.
Unfortunately, this area has not fully recovered from the impact of COVID-19, with office workers and residents not returning in previous numbers.
Challenges of Delivery Apps
The shift towards delivery apps has also posed challenges.
During the pandemic, sales for both brands leaned heavily towards carryout, which now constitutes about 30 to 40 percent of orders.
Delivery Service Commissions
However, orders through services like Postmates and Uber Eats come with hefty commissions.
These fees significantly reduce profitability.
CEO’s Insight
CEO Harald Herrmann stated in the bankruptcy filing, “A commission rate of between 15 to 18 percent depending upon the provider, coupled with related packaging costs of four percent, make these sales less profitable.”
“Passing this entire cost along to the consumer is not possible as it would have a negative impact on demand for the Restaurants.”
Impact of California’s Minimum Wage
The company also pointed to California’s $20-an-hour minimum wage as a contributing factor.
Although the company is small enough, with fewer than 60 outlets, to be exempt from the mandated wage, it has had to increase wages to stay competitive with larger chains.
Seeking $3 Million Financing
The company hopes to secure $3 million in financing from Breakwater Management.
This funding will help maintain operations while they seek a buyer.
Restructuring for a Stronger Future Amid Bankruptcy
Herrmann noted, “We ran every possible option to the ground in order to avoid bankruptcy, but ultimately, restructuring our debt is the best decision for our team members, valued vendor partners and loyal guests.”
“We expect to emerge from this restructuring process stronger and better positioned to prosper in our hyper-competitive industry.”
Rising Popularity and Challenges
In recent years, restaurants like Tender Greens, which offer fresh but quickly prepared salads, have seen a surge in popularity.
Sweetgreen has expanded to 205 locations, and Cava to nearly 280. However, many restaurants across the country are struggling this year.
Rising Costs and Declining Customers
Faced with higher costs, they have raised menu prices, resulting in a decline in customers.
Larger chains such as Applebee’s, TGI Fridays, and Boston Market have closed several locations, as have smaller chains like BurgerFi. In May, Red Lobster filed for bankruptcy and closed nearly 100 restaurants.
California is Hit Hardest
The situation is particularly dire in California, where the minimum wage for fast-food restaurants increased to $20 an hour from April 1.
In early June, Mexican chain Rubio’s shut down 48 locations in the state and filed for bankruptcy. Additionally, mom-and-pop establishments nationwide are also closing their doors. For example, Fargo’s Pit BBQ in Texas recently shut down after over two decades of serving barbecue classics like brisket and ribs.
