Less than two months remain before Piccadilly Restaurants LLC submits its bankruptcy reorganization plan. But the company’s new business model — a leaner organization with a continued emphasis on institutional customers, such as schools, and on emergency services — is growing clearer.
When it filed for Chapter 11 in September, Piccadilly had 81 open restaurants, three closed locations and around 3,500 full- and part-time employees.
Piccadilly has since shed 13 locations, leaving the chain with 68 restaurants and around 3,000 employees, U.S. Bankruptcy Court records show. The company renegotiated most of the leases for those restaurants, sold one closed location and is in the process of selling two others.
Redoing those leases — around a dozen are still being negotiated — will save Piccadilly $275,000 a year, the company said in its most recent report to the bankruptcy court. Piccadilly also closed a Miami restaurant that lost $80,000 during the first three months of the year; and in February, Piccadilly sold the site of a closed restaurant in Jacksonville, Fla., for $483,000.
The company is also trying to sell similar properties in Ocala, Fla., and Warner Robins, Ga.
Despite these cost-cutting moves and others, Piccadilly is losing money. From September to February, the company lost $5.9 million, an average of close to $1 million a month, according to Piccadilly’s most recent operating report to the bankruptcy court.
However, Piccadilly Vice President of Operations Chris Sanchez said the company is drawing closer to profitability every day.
Same-store sales — a measure of restaurants open at least a year — rose by 3.3 percent in March, one of the biggest gains since 2007 and the beginning of the recession, Sanchez said. Same-store sales increased again in April, although not quite as much as in March, and have been even higher during the first part of May.
“Same-store sales for the year are positive, so we feel real good about that. That part’s certainly headed in the right direction,” Sanchez said. “Our food and our labor costs are looking very good … We’re making a lot of headway there.”
And Piccadilly’s institutional food service business is also growing, despite the Chapter 11 filing.
In another move, Piccadilly recently launched an Emergency Services Division, which provides meals for catastrophe victims. The division gives new emphasis to a segment of business that had been in food services.
Piccadilly doesn’t count on emergency services as a revenue stream since no one knows when a disaster will occur, Sanchez said. Instead, the company is using emergency services and a custom mobile kitchen to position the company as a leader in emergency feeding and to draw attention to the Piccadilly brand.
Separately, the institutional food service segment has between 70 and 80 clients, with more than two dozen of those schools, and had $12 million in revenue last year, Sanchez said. Piccadilly expects food service revenue of $12 million to $14 million this year, and is counting on food service to fuel future growth.
“Our plan, long-term vision if you would, is for that to be the same size as our restaurants in five years,” Sanchez said.
Piccadilly estimated its 2012 revenue in the mid-$150 million range, according to bankruptcy court records. That would require food service to do 10 times the current level of business.
“The great thing is I’ve got my regional managers and managers out there just excited about finding things we never thought about, a senior center here, a hospice center there, a monastery, a nuclear site,” Sanchez said. “It’s amazing the avenues that are out there for preparing our Piccadilly food and serving it somewhere else.”
Piccadilly’s emphasis on food service makes sense, said Chris Alberta, senior managing director of turnaround specialists Conway MacKenzie, who is not involved in Piccadilly’s bankruptcy proceedings.
Unlike the steadily declining family dining sector of the restaurant industry, the major obstacle to growth in food service is that customers are locked into long-term contracts with competitors, such as Aramark and Host Marriott Services Corp., Alberta said.
For Piccadilly to turn things around, Alberta said the company needs to focus on the more profitable menu items and business segments.
Piccadilly’s “all-things-to-all-people” menu doesn’t necessarily work today when fewer families sit down together to eat, Alberta said. The first thing Piccadilly should do is streamline its menu, concentrating on the most profitable items.
A slimmer menu would reduce Piccadilly’s costs since the company wouldn’t have to stock so many ingredients and components and improve service, Alberta said. Piccadilly also needs to analyze whether it makes sense to continue serving breakfast and brunch, which involve significant labor costs.
Focusing on the most profitable menu items and business segments will help Piccadilly emerge from bankruptcy and generate the cash for the improvements that could potentially draw new customers, Alberta said.
Piccadilly sought the bankruptcy court’s protection in September because of “an aggressive legal maneuver” by lender Atalaya Capital Management, bankruptcy court records show.
The maneuver, it turned out, was Atalaya asking an East Baton Rouge state district court for permission to seize basically everything Piccadilly owned.
Atalaya companies had loaned Piccadilly more than $26 million, with the loan secured by “substantially all” of Piccadilly’s assets, according to bankruptcy court records. But Piccadilly had not made a payment, neither interest nor principal, for a year.
Atalaya had filed a lien against the cafeteria chain, bankruptcy court records show. But Atalaya said it also worked for three months to restructure the debt with Piccadilly and the chain’s owner, Yucaipa Corporate Initiatives Fund I, IP, a California equity firm.
At the last minute, Yucaipa tried to renegotiate the deal, which Atalaya said forced it to protect its interests by seizing Piccadilly’s assets, bankruptcy court records show.
Piccadilly has until July 8 to file its reorganization plan and until Sept. 9 to convince the court, and its creditors, to accept the plan.
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