Mexican restaurant bankruptcy trend should alarm consumers

When a business files for bankruptcy, it’s natural to assume that it did something wrong.

Maybe it took on too much debt or didn’t do a good job of managing its balance sheet. Or maybe it failed to address a key flaw in one of its products, or opened itself up to a giant lawsuit.

In recent years, we’ve seen a huge uptick in Chapter 11 bankruptcy filings in the restaurant space. But that’s not necessarily due to poor choices on the part of those companies’ management teams.

Restaurants have been battered with:

• Rising labor costs
• Rampant inflation driving up food and ingredient costs
• Supply chain issues
• Post-pandemic changes in consumer spending

Plus, let’s face it. In the restaurant world, there’s a lot of competition. And at a time when consumers are being more careful in how they spend their money, it’s getting harder for sit-down restaurants to win their dollars.

Mexican restaurants have seen a surge in Chapter 11 bankruptcies

While the restaurant industry has experienced some challenges these past few years, it’s hard to overlook the fact that Mexican restaurants seem to be bearing the brunt of it.

Over the past couple of years, we’ve seen many notable names in that space file for bankruptcy, including:

• Tijuana Flats
• On the Border
• Abuelo’s
• Rubio’s Coast Grill
• Burnt BBQ & Tacos

The question is, why? What is it about Mexican restaurants that customers are saying no to?

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One issue may be that when consumers think of Mexican food, they think of a cheap meal. But as retail expert and TheStreet Co-Editor-in-Chief Daniel Kline points out, “Mexican restaurants need to focus on value. Consumers have been very tight with their spending, and many sit-down Mexican restaurants, the type that have been closing, are at a higher price point.”

Of course, it’s hard for restaurants to bring prices down when operating costs are so high. That means Mexican restaurants may need to instead get creative if they want to stay afloat.

Bankruptcies and closures of Mexican restaurants could leave consumers with fewer choices

The fact that so many Mexican restaurants have filed for bankruptcy and closed locations isn’t as surprising as it is alarming. And the reason is simple.

If moderately priced restaurants keep closing their doors, consumers will be left with fewer places to eat.

Even though many of the Mexican restaurant chains that filed for bankruptcy had higher-priced menu items than some of their competitors, on a whole, they’re still less expensive than higher-end restaurants. 

At the same time, they’re a notch above fast-food establishments such as Taco Bell, Chipotle, and Del Taco.

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But if these mid-tier restaurants disappear, consumers may be forced to choose between grabbing a burrito on the go or paying a premium for a sit-down meal. 

Losing that middle-ground option could be a huge blow to people with room in their budgets for the occasional sit-down meal that serves as a nice treat and reprieve from cooking at home.

Given this recent trend, now’s the time for Mexican restaurants to get creative.

“For restaurants still operating, the lesson isn’t panic, it’s adaptation. Now’s the time to think about how to engage and make experiences that keep people coming back,” says retail expert and RTMNexus CEO Dominick Miserandino.

How Mexican restaurants should consider adapting:

• Rethink their menus
• Focus on more authentic recipes
• Specialize in a specific region or sub-cuisine
• Offer premium add-ons like craft cocktails for consumers with more room to spend
• Boost or revamp loyalty programs

These changes could be the ticket to drawing in more customers and staying open at a time when so many competitors are shutting down. And they could be instrumental in keeping an important dining price point alive.

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