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Will Sbarro See 2010?
With interest payments looming and retail traffic down, Sbarro's focus on shopping malls could be its downfall.
image: Sbarro restaurant named to Yahoo Finance's list of 15 companies that might not survive 2009

Under normal circumstances, Sbarro's heavy emphasis on mall locations makes perfect sense.

“They're really well-situated to be in a mall,” says Robert Welcher, president and CEO of Restaurant Consultants Inc. Welcher says that Sbarro's cafeteria-style setup and portable entrees are designed to appeal to hungry shoppers—but that's assuming there are shoppers.

With foot traffic in retail centers down 12.9 percent in January and holiday shopping in 2008 down 15 percent from the previous year, Sbarro found itself named last week to Yahoo! Finance's list of “15 Companies That Might Not Survive 2009.”

“It's not the pizza that's the problem,” the list reads. “Sbarro can't really boost revenue by adding a breakfast or late-night menu like other chains have done. And competitors like Domino's and Pizza Hut have less debt and stronger cash flow, which could intensify pressure on Sbarro as key debt payments come due in 2009.”

So what can Sbarro do to ensure its survival?

“You're going to hear a long silence here,” Welcher says. “They're in a situation where they really can't battle back for it. ... Their hands are tied mostly by the locations of their restaurant.”

Adding to Sbarro's stressors is the success of retail frozen pizzas.

“It's not easy because of the cost of that frozen pizza,” says Harry Balzer, president of NPD. “It's got an additional hurdle.”

Both Welcher and Balzer say that Sbarro's pricing in the upcoming months is key.

“The most important thing consumers are looking for is a way to moderate their food costs,” Balzer says. “This isn't just about restaurants. This is about supermarkets, too. This is about how I eat.”

His advice to struggling restaurants in Sbarro's position?

“Last year the only increases we had in the industry were meals that were bought on some kind of promotion,” Balzer says. “What are you going to do? You're going to have to look for what's the new promotion that can attract the interest of Americans.”

But despite the challenges Sbarro faces, the industry pundits QSR consulted say they think the 53-year-old brand is safe.

“The retail industry is struggling,” says Erin Hershkowitz, spokesperson for the International Council of Shopping Centers. But speculations that as many as 2,000 malls across the nation will close this year “are completely false.”

“There aren't even 2,000 malls in the United States,” she says. “Will there be some strip center closings? Sure, but there are always strip center closings. We're not seeing that as a trend right now.”

A few vacancies in a shopping mall shouldn't hurt overall traffic.

“In a lot of towns in the U.S., the mall is the centerpiece of the community,” Hershkowitz says. “They go there on the weekends, even if it is just to grab a bite to eat.”

With 1,100 units and the strength of their operations and the strength of their management team [i]t's pretty tough to imagine that Sbarro would be leaving the scene.”

In fact, year-to-date mall fast food sales through November were up an average of 2.5 percent when compared to 2007 figures. Every region experienced increases in that category except the South, where sales declined 0.7 percent.

Welcher thinks Sbarro is as well poised to handle the recession as any other chain.

“They really have strong leadership,” he says. “That's not a problem.”

And although Sbarro last reported financial results for the quarter ending September 28, 2008, Welcher says the brand was experiencing a positive trend until that point.

“With 1,100 units and the strength of their operations and the strength of their management team, I tend to disagree with Yahoo!” Welcher says. “It's pretty tough to imagine that Sbarro would be leaving the scene.”

Sbarro couldn't be reached for comment.

Robin Hilmantel is an editorial intern at QSR.