TGI Friday's closes 36 stores, sells more to Former CEO Ray Blanchette

American casual dining chain, TGI Fridays, said on Saturday that it has filed for Chapter 11 bankruptcy protection after fighting with prolonged financial challenges. 

In a filing with the U.S. bankruptcy court for the Northern District of Texas, the company listed both assets and liabilities in the range of $100 million to $500 million, according to reports.

Privately owned by TriArtisan Capital Advisors, TGI Fridays has been a beloved dining destination since its inaugural bar opened in Manhattan, New York, in 1965.

TGI Fridays, owner and operator of 39 domestic "Thank God it's Friday!" restaurants, said it maintains operations across its corporate-owned 'happy hour' dining places in the U.S., adding that it has secured a financing commitment to support operations.

“The primary driver of our financial challenges resulted from COVID-19 and our capital structure. This restructuring will allow our go-forward restaurants to proceed with an optimized corporate infrastructure that enables them to reach their full potential,” shared Rohit Manocha, Executive Chairman, TGI Fridays.

After the bankruptcy announcement on Saturday, the Dallas-based chain said normal operations will continue in all of the franchise locations both in the U.S. and internationally.

TGI Fridays Franchisor, which owns the brand and intellectual property, has franchised TGI Fridays to 56 franchisees in 41 countries. The restaurant operator said those stores are independently owned and are not part of the Chapter 11 process.

Bistro Hospitality that runs TGI Fridays' in India and TGI Fridays Inc have sold their stake in the US casual dining restaurant chain to Singapore-based Universal Success Enterprises.

Bistro Hospitality has sold its 75% stake while, TGI Fridays Inc has sold 25% stake for an undisclosed amount.

However, the TGI Fridays brand will still run in India subsequent to the ownership change.

"This was a strategic buyout," shared Rohan Jetley, Chief Executive Officer, Bistro Hospitality by confirming Jetley family's 75% stake sale.

Bistro Hospitality has been running TGI Fridays in India for over two decades and at present operates nine stores in the country.

TGI Fridays had closed three stores earlier this year after the rollback of input tax credit hurt its profit margins by 10-15%, shared media reports. Meanwhile, Bistro later this year said that it would reduce its stake to raise private equity funding to support its expansion and also appointed Centrum Capital as its investment banker.

It was also in the news that the restaurant chain had plans to establish the first Friday's American Bars to tap the dormant demand in tier-II markets and leverage lower rentals.

Casual fine dining restaurant chain TGI Friday’s rolled back 25% of its outlets over the past 20 days and has put its growth plans on hold, mainly due to a rollback of the input tax credit (ITC) in November last year.

Besides the tax levy, the industry had seen a tough year due to various factors including SC’s liquor ban along highway.

“The rollback of ITC led to an almost overnight 18% increase in all capital expenses and rentals,” TGI Friday’s India chief executive Rohan Jetley said. Since all our investments have been only by internal accruals, our growth plans are on hold,” he told a financial daily.

The company closed three TGI Fridays stores — one each in Delhi, Gurugram and Bengaluru — and let go 150 employees. “This is the first time in 23 years that we have had to shut down three stores back to back,” Jetley said.

“The situation in the long term looks unsustainable as of now; our international partners are apprehensive,” he said.

The government had withdrawn input tax credit against goods and services tax when GST on restaurants was slashed to 5% from 18% in November last year.

“Shutting down a restaurant has a multiplier impact on employment, consumption and foreign investors. We are hoping that the government relooks at ITC,” Jetley said.

From its overall presence of 12 stores, the American chain’s India store count is now down to nine. Globally, TGI Friday’s Inc operates 900 stores across 60 countries and is owned by private equity firms Sentinel Capital Partners and TriArtisan Capital Partners.

TGI Friday’s started operations in India in 1996, as a joint venture between Indian firm Bistro Hospitality and TGI Friday’s Inc.

The company had early last year said it was working on plans to bring in a second brand in the country based on a small-format bar model, to focus on liquor and snacks. At that time, it said India would be the first country where Friday’s is setting up the bar model, as it looks to respond to fast-changing consumer demographics, lifestyle evolution, and urbanization.

Restaurant operators say the removal of input tax credit directly impacts profit margins by 10-15%. According to industry experts, 2017 was a tough year for the industry on multiple counts, including the goods and services tax rollout, the impact of demonetization and a ban on selling and serving liquor near highways.

TGI Fridays is bringing a second brand based on the bar model to India, to focus on liquor and snacking instead of operating as a full service restaurant chain that the American company has traditionally been. The new outlets are expected to be called Fridays American Bar. India will be the first country where Fridays is setting up the bar model, as it looks to respond to fast changing consumer demographics, lifestyle evolution and urbanisation.

“The company is experimenting with creation of another brand under the Fridays portfolio. In India, the new brand will be set up on smaller formats, which will give Fridays the ability to penetrate the market more, keep the capex low and focus on the development strategy,” TGI Fridays India chief executive Rohan Jetley told ET. “We expect a disproportionately higher growth curve with the smaller format and the Fridays umbrella brand pull,” he said. Global CEO Aslam Khan said last month that his focus was on pushing the brand towards a bar-focused, beverage-based environment. “My number one thing is hospitality, good product and a great bar. I want to enhance the performance a little bit better for investors, employees and, most importantly, guests,” Khan, who took over the top post in April, said.

In India, Fridays operates 12 TGIF stores and is positioned in the fine-dining space. Jetley said once the bar concept takes off, it could be taken to other international markets. “In terms of supply chain, storage, capacity and other back end operations, synergies will sync and create efficiencies. But the brand propositions of the existing TGI Fridays and the bars will be entirely different,” he said. The bar and pub segment in India has grown 23.5% in 2014-16, compared with 21.6% by cafes, according to data from market research firm Euromonitor. The growth is being fuelled by younger millennial consumers, better pricing and an increasing number of brands entering this market. According to Euromonitor, the consumer segment frequenting cafes and bars is primarily in the age group of 18-35.