Disruption from the Vantage Point of the Disrupted
Freemium Briefing - 9/20/18
Read Time = 5.3 a$$-kicking minutes
First, happy new year to those who observe the Jewish holidays and an easy fast to you. You definitely don’t need to feel guilty if you’re reading this while in service. All good.
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🗞News of the Week (2 Reads)🗞
1. ☠️R.I.P. Blockbuster Video. Finale: Part IV. (Long Kicka$$ TWTR Feeds)☠️September 23 marks the eight year anniversary of Blockbuster Inc’s chapter 11 bankruptcy filing. In Part I, in “🎆Lehman + Blockbuster = Anniversary Fever🎆,” we laid the foundation for what happened to the once-ubiquitous and revered retailer. In Part II, in “💥Clash of Titans: Biglaw vs. PE Direct Lender💥,” we discussed the company’s efforts to tackle its capital structure and avoid bankruptcy. And in Sunday’s Part III, in “🤖Tech Wants to Axe Lawyers🤖,” we discussed how the harsh realities of Blockbuster’s business necessitated a contingency plan, how that plan ALSO failed, and the eventual sale to Dish Network.
Now in Part IV, the last in this series, we discuss how that all worked out for Dish Network (spoiler alert: not well) and what is left of Blockbuster today.
Dish’s dalliance with the Blockbuster brand proved short-lived; it started shedding stores almost immediately after the 363 auction and throughout 2012. In January 2013, Dish continued decreasing the Blockbuster footprint, shedding 300 additional stores and cutting jobs in January 2013. Per The Wall Street Journal:
Dish Network Corp. plans to close a further 300 Blockbuster stores in the U.S. in the coming weeks, leaving the video chain with less than one-third of the stores acquired by the satellite-television company in 2011.
The closures will result in the layoffs of 3,000 employees, or about 40% of Blockbuster’s workforce of 7,300, a spokesman for Dish said Tuesday.
About 500 Blockbuster stores will remain open in the U.S. after the moves, Dish said.
Blockbuster, which had more than 9,000 retail stores across America just nine years ago, is closing the few hundred video-rental stores that it still has, the company’s owner, Dish Network, said on Wednesday in a bittersweet but long-expected announcement.
Contrary to what we often say, perhaps what is dead may actually die.
So what’s left of Blockbuster on this 8th anniversary of the bankruptcy filing? One store. One hilarious Twitter account. A Kickstarter-funded documentary in the works. A craft beer (naturally). One outdated website. An upfront cameo in the brand-spanking-new Captain Marvel trailer. And lots of nostalgia.
📼 The last Blockbuster stores in Alaska are closing.
That leaves just one store in the entire U.S.: Bend, Oregon.https://t.co/4zLb7gn1kn
Sometimes you want to watch something fucked up like Human Centipede or Fraggle Rock but you don't want it sitting on your shelf at home where loved ones could see it. That's where we come in.August 24, 2018
We like that you guys are safely disposing of your needles but that's not the purpose of the movie return slot.August 30, 2018
Just a reminder that while Netflix was busy adding commercials to your experience we were busy adding ant traps to give you an ant free experience.August 20, 2018
Congrats to the little league team we sponsor on a stellar 2-11 season. Enjoy the pizza party you talentless hacks.July 27, 2018
Anyone else stare longingly when u pass by where a Blockbuster used to be?August 28, 2018
We recently crossed Netflix’ 21st anniversary:
On this day in 1997: Netflix founded
Netflix website in 1999: pic.twitter.com/4GafjdqCLt
August 29, 1997: Netflix launches as a direct mailing DVD service.
2000: Reed Hastings (Netflix CEO) approaches John Antico (former Blockbuster CEO), offers to sell for $50 million. Antico declines.
August 29, 2018: Netflix has 118 million subscribers and is worth $156 billion. pic.twitter.com/Tvi2Qil2yL
And — just saying — Netflix has significantly more debt than Blockbuster had at the time of its bankruptcy filing. All in the name of creating original content.
And R.I.P. Blockbuster.
2. Restaurants Continue to Struggle (Short Dick)
Just a few weeks ago in "💰💥Greed. Is. Good.💥💰,” we noted the following:
Restaurants (Long Summer Vacations). Sales at foodservice and drinking establishments rose 1.3% in July compared to June. This capped a three-month period that reflects the fastest sales growth in 25+ years. Theories abound as to what drove the overall increase. Inflation? Tax cuts? Independent restaurants? Summer vacation spending?
But…but…traffic at restaurant chains (read: casual dining) continued its downward trajectory, declining 1.8% in the month. Same-store sales were up modestly YOY, but only as compared to one of the worst months of the last three years.
Indeed, there’s still plenty for restructuring professionals to keep an eye on in the food space:
Starting to see an awful lot of stories about troubled franchise systems, either with operators closing like this or franchisor-franchisee disputes. https://t.co/YHfuEgTdwFSeptember 14, 2018
According to the company’s most recent franchise disclosure document (FDD), Dickey’s has closed a total of 113 locations in the 2018 fiscal year ended May 31. That includes 89 “terminations” and another 24 that simply “ceased operations.”
In other words: One out of every five Dickey’s locations that was open at the start of the chain’s last fiscal year was closed by the end of it.
The fast-casual barbecue chain opened 72 restaurants over that same time frame, giving the company 526 restaurants nationwide—a 41-unit reduction in unit count over that year, according to the company’s franchise document. All but five of Dickey’s restaurants are franchisee-owned.
The reduced unit count comes as the chain’s sales appear to have stumbled. Sales at the chain are down 10.6% this year through July, according to data from Technomic’s Transaction Insights. Total traffic year to date is down 13.3%.
To the extent Dickey’s cares about the health of the overall brand, this would seem to be a prime candidate for financial advisory firms with performance improvement expertise. Dickey’s looks like it expanded too quickly, selling out for franchise fees. Now, though, the locations have performed poorly, necessitating the franchise to pull the rug out from under a number of franchisees or, alternatively, franchisees just calling it quits. In the long run, this can’t be good for Dickey’s franchise model.
Meanwhile, Dickey’s apparently isn’t the only limp Dick. Dick’s Last Resort, a bar and restaurant chain known for its intentionally obnoxious wait staff also appears to be disappearing. Wikipedia notes, “Starting in 2016 multiple locations have closed with almost no notice.” 13 locations remain listed on the company’s website. Query how long that lasts. There are enough obnoxious people ambling about wasting our time on a daily basis: we can’t imagine voluntarily eating amongst them. But maybe we’re just urban snobs.
Finally, some shenanigans across the Sun Capital Partners’ portfolio have our PETITION senses crawling. Back in May, Sun Capital portfolio company Boston Market announced that its CEO, George Michel, was retiring “effective immediately” after an eight year stint. This was roughly a year after Sun was reportedly exploring the market for a sale of the restaurant property for $400mm — a sale that, clearly, never got done. Now, Mr. Michel is returning to the restaurant management business. Restaurant Business reported the other day that Mr. Michel will take over the helm of Friendly’s restaurant chain as interim CEO. Friendly’s is also a Sun Capital portfolio company. Call us crazy and definitely categorize this under #PETITIONspeculation, but (i) when a sale doesn’t get done on a business that has been minimizing footprint in a tough space, and (ii) the CEO unceremoniously and suddenly “retires” only to resurface for the very same private equity sponsor a mere four months later, something tells us there was more to that retirement than meets the eye. And we’re guessing it had something to do with Boston Market’s lenders. 🤔
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥. Two books we’re excited to add to the list include Bethany McLean’s “Saudi America” and Gary Shteyngart’s “Lake Success.” The former is about the U.S. as a world oil superpower and the latter is apparently about how hedge funders are d-bags.
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