Palomino Rustico sits in the heart of downtown Bellevue, surrounded by Bellevue Square, the Cheesecake Factory and the Bellevue Arts Museum. Parents pushed strollers through the main intersection of Bellevue Way and Northeast 6th Street on Tuesday, and the lunchtime crowd swarmed the square, dipping in and out of restaurants surrounding Palomino.
But Palomino was quiet. The “urban Italian” restaurant’s doors were closed at the end of June, and its red patio umbrellas remain tightly wound.
It’s one of six eateries that Restaurants Unlimited, Palomino’s parent company, closed shortly before it filed for Chapter 11 bankruptcy protection in Delaware on Sunday. Others, from Indianapolis to Texas and California, also included Portland Seafood Company as well as Prime Rib and Chocolate Cake, both in Oregon.
The company primarily blames rising minimum wages along the West Coast for its troubles, but management misfires and changing consumer habits clearly played a big role.
In mid-2017, well after Seattle’s new minimum wage was established, Restaurants Unlimited opened two Henry’s Tavern restaurants, in Seattle and in Bellevue, at a cost of more than $10 million, according to court records.
Both performed poorly: “The anticipated foot traffic and projected sales at these locations did not materialize and, exacerbated by the increase in employee costs, the company experienced significant operating losses at these locations,” the company’s recently appointed chief restructuring officer, David Bagley, wrote in court documents.
Ethan Stowell, a Seattle chef who owns a dozen restaurants in the area, said that with changes in workplace rules and consumer tastes, “it’s a very hard business to keep going.”
“I’m definitely feeling it right now.”
The year after Seattle increased its minimum wage, it established a new secure scheduling ordinance to increase reliability of hourly work schedules. The city also increased the soda tax in the same year.
“The cost of living in Seattle has gone up a lot, and people don’t necessarily increase their price point for dining the way they do for their rent or mortgage,” Stowell said.
He said the competitive nature of the restaurant industry — during six weeks during the summer of 2017, Seattle saw 40 new restaurants open — has forced companies to adjust their business models and rapidly pivot.
“I think it’s tough to expect a bunch of changes really quickly to not have some consequences,” Stowell said. “These are all good things for the industry, but, let’s be honest, it costs money.”
Court documents show Restaurants Unlimited owed more than $37 million to secured creditors, and had not made any payment on those debts since January. It was also behind on rent payments and other obligations, presumably including $7.6 million owed to suppliers and unsecured trade creditors.
As of the bankruptcy filing, Restaurants Unlimited only had $150,000 in cash on hand, “an amount insufficient to operate the Debtors’ businesses,” it said.
In a statement, the company said the bankruptcy will allow it to secure $10 million to fund operations while it looks for a buyer.
“We believe this path offers the greatest potential for stability and future growth,” the statement said.
However, in court documents it acknowledged that despite “almost constant efforts and management attention … over the last three years” to find either an equity investor or a buyer, it has been “unable to consummate a transaction.”
This story was corrected to clarify that Ethan Stowell was referring to 40 restaurant openings within six weeks in 2017.