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How a famous restaurant fell into bankruptcy

Le Cirque in New York City was a world-famous restaurant, known for excellent food, impeccable service and, of course, high menu prices. When the restaurant filed a Chapter 11 bankruptcy petition in March 2017, most observers expected it to reorganize its finances and continue to operate. These same observers were shocked when the restaurant recently said that it was closing permanently. An October 4 filing in the New York bankruptcy court by Le Cirque's parent company has answered many questions about the decision to close the restaurant.

Increases in two major expenses - rent and labor costs - appear to have played a major role in the company's decision to cease operations. By May, the restaurant was $135,000 in arrears in rent, and monthly rental payments were averaging $50,000.

Gross income and expense numbers offer a surprising picture of expenses racing ahead of revenues. During August, the restaurant grossed $466,000 on food and drink. In the same period, the company paid expenses of $506,000, including back rent of $151,000 and absorbed a net loss of $40,666. The reports states that the restaurant spent $20,000 on seafood, $17,576 on meat, $10,881 on product and $5,513 on bread.

Nearby restaurant owners offered some insights into Le Cirque's plight. The dining industry is noticing an overall downward trend in revenues generated by sit-down restaurants. The owner of Empellon Midtown said that Le Cirque's rent is high and its revenues are too low to sustain its business model.

Le Cirque's owner and founder Mauro Maccioni said that one of the reasons that the New York Le Cirque is closing is to protect the LeCirque brand, which it uses on restaurants in 10 different locations, including Las Vegas and Mumbai. This decision shows how bankruptcy can help a parent company preserve important intellectual property and good will in the face of adverse business conditions. Le Cirque's last meals will be served on New Year's Eve 2017.

Source: Bloomberg.com, "The Troubling Economics of One of the World's Great Restaurants," Kate Krader and Tiffany Kary, Oct. 18, 2017

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