Sbarro's Bankruptcy Filing Points to Bigger Problems

After years of poor operating results and falling sales, Sbarro filed for bankruptcy protection -- today, it did it again.

Mar 11, 2014 at 10:15AM

Let's travel back in time to a simpler place, a place where anything was possible and everyone was joined together in acting for the common good -- America, 2011. It seems like only yesterday that the new royal couple was walking down the aisle and Charlie Sheen was getting fired. It was also the year that Sbarro was filing for bankruptcy protection for the first time. At the time, the business said that it was a strong company and that it intended to "emerge expeditiously from Chapter 11 as a stronger, well capitalized and more competitive company." 

Or not. Yesterday, Sbarro filed for Chapter 11 protection again, hot on the heels of a January announcement that the company was shuttering 155 of its approximately 400 North American locations. The 58-year-old chain is looking rough around the edges.

Is Sbarro suffering from pizza exhaustion?
Maybe Americans just aren't crazy about pizza anymore. We've gone through our Atkin's diet phase, our low-fat phase, that weird year where we didn't eat tomato paste because it gave us gas. As it turns out, we're not that averse to the occasional slice, with nine out of 10 Americans consuming pizza at least once a month. 

According to PMQ Pizza Magazine -- voted No. 1 "magazine to eat when you want a late night snack" -- U.S. pizza sales topped $37 billion in 2013. Sales have put up slow but steady growth, rising 1.2% last year and 1.6% in 2013.

Pizza's popularity may be Sbarro's biggest problem. New pizzerias are opening up all over the place, with study from RestaurantData.com showing that openings have increased by more than 10% every year for the past few years. Those new businesses have been competing with established players like Sbarro, Pizza Hut, and Papa John's, but have also had to contend with the rise in fast-casual locations.

Slow food equals bad news
One of the biggest challenges for pizzerias has to be the perception that pizza takes time. That means that at lunch, on the road, or anytime you're in a hurry, pizza moves down the list of options. Instead, consumers are flocking to businesses like Panera Bread (NASDAQ:PNRA) and Chipotle Mexican Grill (NYSE:CMG) for quick but substantial meals.

Fast-casual chains are soaking up diners' cash, putting the squeeze on other restaurant chains. Chipotle's revenue increase 17.7% last year and Panera's revenue was up 12%. Sbarro has felt that pinch, and when Moody's dropped the company's debt rating, it cited declining foot traffic and revenue as major components of the company's overall problem. Those feet are off to Chipotle instead. Moody's reported approximately $290 million in revenue for Sbarro last year, whereas the company was pulling more than $475 million in 2009.

With Chipotle working on a pizza chain called Pizzeria Locale, Sbarro and other pizza servers are going to be facing down new competition. Panera tried pizza and failed, back in 2007, but if Pizzeria Locale takes off, there's no reason the sandwich chain wouldn't try again. The future of pizza looks bright, but Sbarro seems unlikely to be a major -- or even minor -- player.

A winning stock for 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Moody's. It recommends and owns shares of Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers