Dive Brief:

• Logan’s Roadhouse parent company CraftWorks has notified roughly 18,000 furloughed employees that they have been terminated immediately with healthcare benefits ending as of March 31, according to Restaurant Business.
• CraftWorks has also closed 261 restaurants due to insufficient funds to keep the operating during COVID-19 after a debtor-in-possession financing fell through. It commenced Chapter 11 bankruptcy proceedings in March.
• CEO Hazem Ouf and CFO Jim Lebs were recently terminated for paying sales taxes without permission, adding more uncertainty to the brand’s future. Marc Buehler is reportedly taking over as CEO.

Dive Insight:

The novel coronavirus is ravaging the restaurant industry and creating dire circumstances for brands that were already suffering from poor sales and other problems. On top of navigating its bankruptcy proceeding, CraftWorks is now attempting an executive leadership change as well as a complete turnover of its workforce. That’s a hefty set of challenges for even a healthy brand to bear on top of COVID-19.

Although the terminations and closures were likely aimed at stopping the brand from further financial hemorrhaging, the optics may make any chances of rehiring staff or taking on new hires difficult to overcome once the pandemic passes. Consumers may also take issue with with the fact that CraftWorks chose to navigate this crisis by terminating employees, while other brands like Chipotle and Starbucks are offering increased pay for workers.

But CraftWorks is not alone in shuttering restaurant locations due to COVID-19. Even emerging brands have been hit hard, with Punch Bowl Social facing potential foreclosure after laying off most of its staff and temporarily closing its 19 locations. According to a survey from the National Restaurant Association, 3% of restaurants have already closed and another 11% expect to close within the next 30 days. 

Closures aren't surprising, as many independents have found that switching to off-premise only isn't generating enough revenue to stay open. Fast casual and full-service restaurants will likely bear the brunt of this crisis, according to a recent Moody’s report, while QSRs are better positioned to weather the storm through their existing e-commerce offerings based on delivery and takeaway. QSRs are not completely immune however, with McDonald’s recently shuttering 1,270 stores throughout the U.K. and Ireland.

CraftWorks is also not alone in terminating employees or taking other employee-related steps to protect the company. Union Square Hospitality Group let go 2,000 employees, or 80% of its staff, in mid-March to cope with the financial impact of restaurant closures. It set up an employee relief fund to support staff members while CEO Danny Meyer donated his entire compensation and implemented pay cuts for the rest of the staff. The Cheesecake Factory furloughed 41,000 hourly employees earlier this week, while CEO David Overton and other executives took a 20% pay cut and the board took a 20% reduction in annual cash retainer fees.