What went wrong for TGI Fridays and Karen’s Diner?

American-style diner TGI Fridays has officially filed for administration, while Karen’s Diner has ceased trading in the UK.

With the collapse of these chains happening almost simultaneously, it raises questions about how restaurant businesses can survive in a time of economic uncertainty.

The downfall of TGI Fridays

The first TGI Fridays restaurant was opened in New York in 1965, with a signature look inspired by the Barnum & Bailey Circus and a mission to put on “the greatest show on earth”. 

Just over 20 years later, TGI Fridays landed in the UK and opened its first restaurant in Birmingham. Since then, it expanded to 87 more locations across the country. 

Now, with all of its locations up for sale, it looks like the American dream is over for its UK restaurants. 

Today, Hostmore – the UK operator for TGI Fridays – announced it was filing for administration. The company has put all 87 of its restaurants up for sale, with around 3,000 jobs at risk.

Hostmore had agreed to acquire the TGI brand for £117 million in April, but this deal was later retracted as the American company had lost control of key assets. 

As a result, the company’s share price dropped by a staggering 90%. It was also reported that sales had fallen by more than 10% compared to the previous year, with rising inflation and the cost of living crisis exacerbating this decline. 

Matthew Bibby, chief financial officer (CFO) of Hostmore, stated: “Unfortunately, all of the Board’s efforts to implement a lasting solution to support the long-term financial future of the business came against a highly challenging trading and macroeconomic backdrop, and efforts to create value for shareholders through the proposed acquisition of TGI Fridays, while well-advanced, encountered adverse events outside of the Board’s control.”

While the administration process has begun, the restaurants are continuing to operate as normal for the time being. 

Karen’s Diner ceases trading in the UK

In similar news, Australian restaurant chain Karen’s Diner has also announced that it has stopped trading in the UK. 

Known for its purposely rude service, the chain went into liquidation due to “mounting financial pressure”. 

The company previously closed multiple sites across the UK, leaving it with just a single location in Angel, London. At the time, the group said that it wanted to focus on “pop up” events rather than opening new restaurants.

However, this is “very unlikely to take place” following the liquidation of its parent company, Viral Ventures UK. 

“It is always a challenging moment when a business, especially one with the reach of Viral Ventures, is forced into liquidation,” Jeremy Frost, director of insolvency firm Frost Ltd commented. “We understand the disappointment and concern, particularly for those with deposits for upcoming shows. Our priority is to guide those affected  through this process and ensure the necessary steps are taken.”

According to recent accounts filed to Companies House, Viral Ventures owes over £400,000 to creditors. It was also reported that the majority of Karen’s Diner staff were on zero-hour contracts.

What can businesses take from this?

Even before entering administration, TGI Fridays was already facing difficulties in staying relevant and keeping up with consumer preferences.

Aside from its decline in sales, TGI Fridays briefly rebranded by changing its name to  “Fridays” in an attempt to modernise. However, its original name was quickly restored after it was discovered that customers still referred to it as “TGIs”.

Moreover, customers pointed out that the quality of the food at TGI Fridays wasn’t the same compared to when it first opened.

A customer on Reddit commented: “I remember over 10 years ago TGI Fridays being a pretty good place to eat. Over the past few years, I’ve been to 3 different locations (none my choice) and it’s been terrible. Mashed potatoes didn’t taste edible and their ‘boneless wings’ were essentially cheap popcorn chicken. Had to cancel the mains and leave the rest of the food uneaten.”

Another added that its food had become “common” and could be found in other restaurants.

“The Jack Daniels ribs were amazing when I first tasted them. Now it sells the type of food that is common everywhere,” it read. “Want a burger loaded with cheese and BBQ sauce? Well then go to Wetherspoons. Want some ribs covered again in BBQ sauce? Well then, go to any sizzlers chain or similar.”

As for Karen’s Diner, the eager expansion to new locations proved that while opening in new areas can be a sign of success, it also adds overhead costs, as ultimately proven when all but one restaurant was closed down. The controversy surrounding the closure of its Brighton Marina store following a drug bust – where a high reading of cocaine was found on a baby changing table – only further added to its struggles. 

The collapse of both TGI Fridays and Karen’s Diner will come as disappointing, but serve as a reminder that even well-known brands can become vulnerable if they don’t adapt to changing market conditions and customer expectations.