Optimists say the wholesale closings of restaurants in recent months will eventually foster new shoots of growth. For firms in the business of liquidating shuttered operations, that wait is already over.

Their trade is booming as inventories are swollen by the massive shutdowns within heritage brands like TGI Friday’s, Red Lobster, Denny’s and Applebee’s.

“Year to date, we’ve done about 400 closings,” said Neal Sherman, founder and CEO of the Rochester, New York-based restaurant liquidator TAGeX. “We’ve been in business for 38 years. It’s definitely more than we’ve seen at any other time.”

He called it “the ultimate shakeout,” and notes the wave has swept up more than just the legacy operations whose stunning retrenchments are generating headlines.  

“It’s not just the apocalyptic closings,” said Sherman. “We’re closing higher-end independent operators across the country, we’re closing QSRs that can’t compete with local fast casuals, we’re closing lots of casual-dining restaurants. I’d say it’s any operators who have not invested in their brands.”

The liquidations can be as varied as the shuttered properties. Sometimes TAGeX is working for a lender. Other times, “it’s the operators themselves,” said Sherman. “It’s been the trained trustee of the court, or a ‘chief restructuring officer’—we’ve been seeing more of those. 

“It all depends on the situation and how fast they have to vacate the location.”

Sometimes the facility is sold lock, stock and barrel. But usually the operation is broken into lots, each with its own For Sale sign.

“It might be 75 to 200 lots,” Sherman continued. “A lot can be a single piece of equipment, or it could be several pieces of smallware.”

The lots are stored in the former U.S. Army base that TAGeX bought in upstate New York. They’re sold in a variety of ways, from middlemen dealers to e-commerce. The company’s liquidation marketplace, RestaurantEquipment.bid, might draw “as many as a million views a day,” said Sherman. “We can’t help thinking it’s going to continue to grow.”

A sale might come from anywhere in the world.

Yet only about a third of TAGeX’s business comes from closings and liquidations. A significant additional portion comes from the sale of equipment that was replaced in a restaurant or other operation as part of a routine upgrade.

About 40% of revenues come from the sale of new equipment that’s either overstock or hardware the original buyer no longer has interest in deploying, Sherman said. 

“Panera had us pull all of their panini units so they wouldn’t have to train people,” he said.

Most of the buying interest comes from independents and small chains in the early phases of their life cycles. 
 
The restaurant-equipment resale market generates $5 billion to $6 billion annually, according to Sherman. He pegs the new equipment market at around $15 billion.

There’s no standard price differential between new and used equipment. “It’s all about its condition, how it’s been cared for,” explained Sherman. 

He attributes the current spike in restaurant closings to an increase in competition that stems in turn from a blurring of channels. “Now you can get prepared foods in every c-store in the country,” said Sherman.  “You only need so many places where you can get breakfast.” 

Plus, “there’s a natural lifecycle to concepts and what’s offered within concepts,” he continued. “We’ve seen it over the decades. There’s always been that baseline.” 

It’s just higher than what TAGeX has seen before. And that’s alright with Sherman.

Article originally posted at https://www.restaurantbusinessonline.com/operations/restaurant-industrys-retrenchment-proving-boon-liquidators