Sbarro Pizza Bankruptcy: Fast-Food Chain Files 2nd Time in 3 Years

Citing a decline in mall traffic and debt, Italian fast-food chain Sbarro filed for bankruptcy for the second time in three years.

Under a new Chapter 11 reorganization plan, lenders would take control of the chain, allowing Sbarro to reduce debt by 80 percent, according to Reuters. Sbarro, headquartered in Melville, N.Y., said that most of its lenders have agreed to the restructuring plan and are inviting others to submit better offers.

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"Sbarro has been stuck with an outdated business model," Michael Whiteman, a restaurant consultant, said. "Its biggest shortcoming is that it sells food that has been sitting out for a while and more people want food made to order."

The changing fast-food landscape now has Sbarro, founded in 1956, competing against chains such as Chipotle and Panera Bread. Sbarro recently shut down more than 180 restaurants and is expected to close another 50, leaving it with 799 restaurants and 2,700 employees.

Sbarro filed for bankruptcy in April 2011, according to the Associated Press. The pizza chain tried to update its image with new recipes and ovens after emerging from the first bankruptcy. 

Sbarro restaurants are often found in airports, malls, train stations and highway rest stops. CNN Money noted that their location strategy often leaves Sbarro without a pizza competitor, but the chain does not have the advertising budget to reach beyond the typical mall crowd. 

"The board and senior management team are committed to ensuring Sbarro’s future growth and success and today’s filing is a necessary step," David Karam, the chief executive, told Reuters. "I don’t know that it has a sustainable business over the longer term. The way to turn the company around in the short haul is to get out of money-losing leases and close stores, which it has been doing."

The chain is one of several this year to cut workers and locations. RadioShack said it plans to close up to 1,100 stores. Staples announced it will shut down 225 stores.

In January, J.C. Penney said it will close down 33 stores, and Macy's said it will close five stores and lay off 2,500 workers.

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