Major Restaurant Chains May Face More Bankruptcies in 2025

If higher food costs presented economic challenges for home cooks in 2024, restaurants felt the pinch even more. This past year was marked with a number of major bankruptcies in the food industry, across a range of restaurant types. And it looks like 2025 may bring continued challenges, especially for large chains.

The most notable bankruptcy filing in 2024 was easily Red Lobster, which rocked the restaurant industry when it broke news of its decision to file for Chapter 11 bankruptcy in late spring. With roughly 649 locations in the United States and Canada and 36,000 employees before declaring bankruptcy, employees and customers immediately felt the impact, as 99 locations closed in May with more to follow later in the year.

Meanwhile, consumers in Chicago, Illinois; Austin, Texas; and Washington D.C. were shocked when upscale convenience store chain Foxtrot, known for gourmet grab-and-go meals, coffee, and groceries, abruptly closed its 33 stores and folded the company, without giving employees or patrons any notice. Employees reportedly had to ask customers to leave stores so they could close.

Foxtrot filed for Chapter 7 bankruptcy, which indicates that a business plans to liquidate at least some of its assets to pay off debts, whereas Chapter 11 signifies that a company will reorganize and restructure its debts, creating a repayment plan while continuing to operate.

Fortunately, by the end of the year, Foxtrot’s founders had reopened four locations and run advertisements asking former employees to reapply for jobs at the new stores. 

Another major chain, TGI Fridays, closed 50 locations this fall before filing for Chapter 11 bankruptcy in November, bringing its numbers to a total of 163 restaurants nationwide. 

While all of these chains have managed to continue operating, trends unfortunately indicate that 2025 will bring continued restructuring and financial hardships for the restaurant industry.

“I think you will see some more,” says R.J. Hottovy, head of analytical research at Placer.ai, a software platform that provides insight into customer foot traffic, location data, and demographics. While it might not mean they’ll file for bankruptcy, other large chains including Applebee’s, Denny’s, Wendy’s, Rubio’s Coastal Grill, Outback Steakhouse, and Hooters have all closed locations this year or plan to do so in 2025.

Higher food costs pushed customers to cook at home

The restaurant industry is a fiercely competitive landscape, and the challenges facing food business have become even more daunting since the pandemic struck nearly five years ago.

Hottovy says that chains face a combination of concerns today, with ingredient prices taking the lead. Since 2020, food costs for the average restaurant have risen 29%, according to the National Restaurant Association (NRA). Much of that increase has been passed along to consumers, who’ve seen menu prices go up by 27.2%. 

Although data from the United States Department of Agriculture (USDA) shows that grocery costs rose 25% from 2019 to 2023, the latest report from the Bureau of Labor Statistics (BLS) demonstrates that prices are now falling for some staples like flour, rice, cookies, ground beef, bacon, and ice cream. 

At the same time, major supermarkets like Walmart, Target, and Aldi have touted price cuts on thousands of items this year in response to inflation, which is changing the way consumers allocate their dining dollars. “The power has shifted back to the food-at-home retailers,” Hottovy notes. 

“People can no longer afford the same food they purchased before the pandemic, unless they cut back on other goods and services,” says Donald Grimes, an economist with the University of Michigan. “Since over time, people tend to upgrade the food they purchase, for example, buying organic products, they must cut back even more on other purchases to be able to afford to buy the food they want.” Even if grocery prices remain higher than previous years, consumers still save money by eating at home, and promotions from accessible stores make that even more attractive.

In an effort to tempt customers to return, many restaurant chains have fired back with numerous specials and innovations. McDonald’s, which flooded its app with discounts for users in 2024, is introducing a new McValue platform that will make it even easier to access promotions and deals. Chili’s has extended its “3 for me” deal to the lunch menu, and Taco Bell has touted combos priced as low as $5. 

Financial challenges squeezed restaurant profit margins

During the pandemic, staff shortages prompted chains and independent restaurants to raise hourly wages in the hopes of attracting more employees. While the work shortage has eased some, restaurants haven’t been able to cut pay. ZipRecruiter estimates that the average hourly restaurant pay is now $17.11 per hour for employees who don’t earn tipped wages, a stark increase compared with the average hourly wage of $10.90 in 2019, according to the Bureau of Labor Statistics.

Commercial rents have risen at the same time, which puts more pressure on profit margins for restaurants already facing higher food and labor costs, Hottovy remarks.  

Chains are also feeling the impact of shifts in consumer shopping habits. From Michigan to California and elsewhere, traditional shopping malls across the U.S. are being transformed into mixed-use properties with housing, offices, park space, and sports facilities. Hottovy says that as malls transform, “They do want more restaurants, but not national ones – regional ones.” 

Consumers shifted towards smaller, more local chains

Unfortunately this means major chains might not be as welcome in large-scale shopping centers. Among developers, the pendulum is shifting toward regional and local chains that have the resources to expand, versus national chains that consumers are less attached to. “People in this day and age seem to be trending toward local favorites,” Hottovy notes. “There’s an element of chains doing well in their home markets, but struggling when they get too far outside them.” 

For instance, Chicago hot dog chain Portillo’s concentrates its locations near its founding city, in Illinois and Indiana, as well as Arizona and California, where many Windy City transplants and snowbirds migrate. Buddy’s Pizza has focused on its home base of Michigan, with its 23 full-service and carryout locations all located within the state. Skyline Chili, the Cincinnati chain famous for its spaghetti-meets-chili mashup, focuses on nearby Ohio, Indiana, Kentucky, and Florida. 

Looking towards how chains can address the number of challenges they face in 2025, Hotovy recommends that they try and keep their growth under control so they can focus on recovering from financial hardships. 

Regardless, it’s likely that the days of big chains invading neighborhood malls en masse are over. Taking a more targeted approach, and bringing a local feel to even the most widespread establishments, might be the key to success as the industry moves forward.