Sbarro Pizza declares bankruptcy again today. For the second time in three years, the fast-food chain has sought Chapter 11 protection from the courts. The fifth largest pizza chain in the United States may be on the ropes, but it is not ready to close its doors yet. The Melville, NY chain went to court today with a pre-packaged restructuring plan on which its creditors have already signed off, indicating a rapid passage through this round of bankruptcy proceedings.
Sbarro began as a single Italian grocery store in the Bensonhurst section of Brooklyn 1956, the same year that founders Gemnaro and Carmela Sbarro arrived from Italy with their three sons. By 1970, the company had retail stores throughout New York City, building its reputation as an authentic Salumeria or Italian grocery store.
Beginning in 1970, the company branched out from the grocery store model to open pizza restaurants, beginning with one at Brooklyn’s King Plaza Shopping Center. Over the next 30 years, the chain expanded throughout the greater New York area, eventually installing pizza stands in malls, train stations, airports and highway service areas across the country, specializing in high traffic locations rather than freestanding locations. The company had more than 1,000 locations around the world, with 600 stores in more than 44 countries, but only 400 in the United States before the current restructuring began.
In February, 2013, the company announced that it was closing 155 of its 400 American stores as a cost-cutting measure to save the company, following a 2011 Chapter 11 bankruptcy case in which the company declared assets of $471 million against liabilities of $487 million. The 2011 bankruptcy shaved $270 million from its $400 million debt load, leaving the company $130 million in the hole for a combination of operating fund debt and accumulated long-term liabilities. This time around, just three years later, the company is declaring $140 million in debts, $10 million more than three years ago.
Sbarro is the third major pizza chain to file for bankruptcy protection in recent years, following number 11 ranked Round Table Pizza and number 11 ranked Uno’s Pizza. According to a just released federal study of American dietary habits, reported by Time Magazine, 13 percent of Americans eat pizza on a daily basis.
When it comes to pizza, consumption statistics are questionable because pizza is the only major fast food that sells a substantial percentage of total volume as frozen pizza products. However, one study reported that Americans consume more pizza than soft drinks, chicken, ice cream, donuts and potato chips, but they eat less pizza than hamburgers, hot dogs, french fries and Oreo cookies. Another study reported that pizza is far and away the most popular dinner choice in the United States, with 93 percent of Americans eating at least one pizza per month.
The recession of 2009 sent prices for basic pizza ingredients – flour, cheese, tomatoes and toppings – skyrocketing,. As a consequence, major pizza deals started offering huge discounts on specialty products in order to draw customers back to their stores. Those discounts have since become permanent at many chains. The price increases put Sbarro, which prides itself on authentic ingredients, a step behind other chains that use cheaper raw materials.
Sbarro Pizza declaring bankruptcy again appears to be a planned step toward bringing the company bank to profitability. The company is expected to come out of bankruptcy within three to six months, but questions remain about whether the company can regain its market share without sacrificing quality, and whether that is choice the closely held company is willing to make. Right now, Sbarro is a pizza company on the ropes but, with a piece of the $40 billion pizza business at stake, look for more aggressive marketing for the remaining locations once the bankruptcy is completed. Sometimes, you just have to wait for the dough to rise.
By Alan M. Milner
Wall Street Journal