Rosenfeld Realty Advisors: SBARRO FILES CHAPTER 11 AGAIN

Here we go again. For the 2^nd time in 3 years Sbarro is heading down the Chapter 11 highway. While it is not stated in the article, they must be the largest pizza chain in the country that is not a delivery only model (if not them Pizza Hut?). They have 799 stores in over 40 countries, about half of which are in North America. Last month they announced the closing of 155 US stores. There are 2 reasons cited for the poor company performance. One is the business model, which says that people want food made fresh not something that is pre-made and reheated. They point to rivals like Chipotle and Panera Bread as examples of successful quick casual restaurants using the made fresh model (Subway too). But to this I say that pizza is still very popular and I don’t think the fact that it is sometimes reheated is scaring many people away from it. Maybe they want to eat healthier, hopefully that is the larger reason. But I am just speculating there, probably naively. The other reason is decreased mall traffic which hurts Sbarro because most of their stores are in mall food courts. That is what interests me from a real estate perspective. Yes, the recession has curbed traffic mall traffic and consumer spending in general but both are on the rise again now that the economy is recovering. What I think is the real problem is the high rents that they are paying. Speaking in general terms, a tenant pays on the average about 3 times more for retail space at a mall food court than what they would pay for retail space outside the mall. The reason for this is that there should be at least 3 times more traffic and this can be verified in several different ways. Aside from malls, they have some very high profile locations in tourist areas in major cities around the country. Those leases, probably like most of the mall deals, were signed long ago when the market commanded much higher rents. Now they could probably get much better deals, but not on a bulk basis. Why you might ask? Because the locations have multiple landlords and there is no way to coordinate such a thing. So they close stores and try and reinvent themselves. They are working on a concept, based on a Chipotle style, where people can build their own pizza and have it made for them. Makes sense although not sure that is really the issue, but who knows. I wish them well and hope it works out this time around. We all need more pizza out there and Sbarro’s is not so bad if you are stuck in an airport sometime. As always thanks for reading and have a great day.

Struggling Pizza Chain Sbarro Seeks Bankruptcy Protection Again

http://www.nytimes.com/2014/03/11/business/struggling-pizza-chain-sbarro-seeks-bankruptcy-protection-again.html?partner=rss&emc=rss&_r=0