Rubio's files for bankruptcy days after closing more than a dozen restaurants in San Diego (2024)

Rubio’s Coastal Grill, which began in San Diego more than 40 years ago and once boasted close to 200 restaurants, announced Wednesday it has filed for bankruptcy protection with the goal of selling the business.

The company, however, stressed that the existing 86 Rubio’s locations — most of them in California — will remain operating while the Chapter 11 bankruptcy process proceeds.

The Wednesday court filing marks the second bankruptcy in a span of less than four years and comes just days after Rubio’s abruptly closed 48 of its restaurants, 13 of them across San Diego County.

“Rubio’s Coastal Grill is one of the legendary fast-casual chains with a strong and loyal customer following in its communities,” said Nicholas Rubin, chief restructuring officer of Rubio’s Coastal Grill in a statement. “Despite the company’s best efforts to right-size the company, the continued challenging economic conditions have negatively impacted its ability to meet the demands of its debt burden. The company believes the best path forward for Rubio’s is through a court-supervised sale process that will position the brand for long-term success to grow and flourish.”

Rubin said its existing lender has agreed to provide debtor financing and has enough liquidity to continue operating the restaurants during the quest for a new owner.

The Chapter 11 petition, filed in Delaware, states that Carlsbad-based Rubio’s Restaurants has assets of $10 million to $15 million, while liabilities are estimated at $100 million to $500 million. The number of creditors may be as high as 25,000, the company said in the filing.

Among the 30 largest creditors with no secured claims is its lender, TREW Capital Management, with an unsecured claim of nearly $28 million. Also on the list are the California Department of Tax and Fee Administration, which collects sales tax; San Diego Gas & Electric; Southern California Edison; and the San Diego County Treasurer-Tax Collector, with more than $74,000 owed. Multiple unsecured claims are for rent, including $55,665 owed to the Aztec Shops at San Diego State University where there is an on-campus Rubio’s.

Rubio’s on Clairemont Mesa Boulevard.

(Sandy Huffaker/The San Diego Union Tribune)

As it did several days ago, Rubio’s blamed its financial woes on what it said is the difficult business climate in California where a wage hike that elevated the hourly pay of fast-food workers to $20 recently went into effect. A number of fast-food chains have already raised prices in response to the pay increase while others are taking a wait-and-see approach.

While the restaurant industry is facing higher costs for labor and food, Rubio’s troubles extend well beyond what other fast-casual eateries are facing, says San Diego economist Alan Gin. He speculates that the chain is suffering from an identity crisis, having changed its branding a few times over the years.

Almost a decade ago, its name changed from Rubio’s Fresh Mexican Grill to Rubio’s Coastal Grill, in a move to draw attention to its seafood offerings. The chain’s hallmark and the inspiration for its founding in 1983 is the Baja-California fish taco.

“They started as high-end fast food and then made the leap to fast casual and that probably was an error. So they got stuck in the middle,” said Gin, an economics professor at the University of San Diego. “When you compare them to Chipotle they just didn’t have the scale Chipotle has with thousands of restaurants so that they can achieve economy of scale.

“I also think Rubio’s is using the wage increase as an excuse. The rise in minimum wage is not enough to tip an organization like Rubio’s into bankruptcy. They had to have other problems for that to occur.”

A sign at one of the San Diego Rubio’s restaurants that closed.

(K.C. Alfred/The San Diego Union-Tribune)

Rubio’s said it plans to enter into what is known as a stalking horse purchase agreement to sell the business to an entity that would be formed and controlled by its existing lender. As part of that process, it will be filing a motion to allow other companies the chance to submit bids, which will be supervised by the court. It expects the sale to be completed within 75 days. The company noted that it will also be seeking court approval to continue operations, which will allow employees to continue receiving their pay and benefits.

The shuttered restaurants in San Diego are spread throughout the county, from Chula Vista to San Marcos. However, there remain 29 Rubio’s outlets in the county, including the original location on Mission Bay Drive in Pacific Beach.

Rubio’s decision to seek Chapter 11 protection comes at a time when several other restaurant brands are opting for bankruptcy, most notably Red Lobster, a longstanding casual dine-in chain that last month also closed dozens of restaurants without warning before filing for bankruptcy just a week later.

“I think it’s harder than ever for most restaurants to make money in this current environment,” said David Henkes, senior principal with Technomic, a restaurant industry research firm. “And there’s always going to be a multitude of reasons why a chain files for bankruptcy, whether it’s Red Lobster and its unlimited shrimp or the labor situation in California. And given the precarious nature of the industry in 2024, anything can push a restaurant over the edge when they’re already trying to balance higher costs and consumer pushback.”

Technomic, which tracks 500 restaurant chains, ranks Rubio’s 188th in terms of sales in its most recent report, released a couple of months ago. More telling is how Rubio’s fared within the limited-service Mexican restaurant category.

Chipotle, for example, grew at a stunning 15.3 percent last year, Qdoba saw growth of 7.7 percent and Taco Bell, 8 percent, while Rubio’s, with $220.3 million in sales last year, grew at an anemic 0.7 percent, the Technomic report found. The overall category, Henkes said, saw growth of 7.3 percent.

“Rubio’s definitely under-performed the category,” he said.

In addition to the higher costs restaurants are struggling with, they’re also seeing consumers’ post-pandemic zeal for dining out slowing as menu prices continue to rise, Henkes noted. Visits to fast-casual eateries, long the darling of the restaurant industry for their more elevated, healthful food and still affordable pricing, have decelerated considerably to the point where traffic is flat, Henkes said.

In its news release on Wednesday, Rubio’s noted that Ralph Rubio, the co-founder of the Mexican fast-casual chain that calls itself the home of the original fish taco, will continue with the company and “provide his usual inspiration and energy going forward.” Rubio has declined to comment on the chain’s financial troubles and has not responded to an interview request from the Union-Tribune.

Even with 86 remaining Rubio’s outlets in California, Arizona and Nevada, the chain is a fraction of what it once was. A little less than four years ago, the company had as many as 170 locations in the U.S. Of the restaurants still in operation, the bulk of them — 61 — are in California.

Still unknown is what’s to become of the leased locations that are now closed. During the bankruptcy process, the chain is relieved of its rent obligations. During the last bankruptcy in 2020, then-chief executive Marc Simon noted that the company spent considerable time renegotiating the terms of some of the remaining leases with about 60 to 70 landlords.

In an interview at the time, Simon told the Union-Tribune that the only reason it had sought bankruptcy protection was because of COVID-19, noting, “In the absence of COVID, we wouldn’t be having this conversation.”

Just days ago, San Diego restaurant analyst John Gordon predicted that a bankruptcy filing was inevitable.

“Rubio’s had its day but once it left the publicly traded markets and (current owner) Mill Road Capital took it over, it went into maintenance mode,” Gordon said. “Ralph Rubio, the founder, continued to consult with them but nothing much happened.”

The current owner of Rubio’s, private-equity firm Mill Road Capital, acquired the company in 2010 for $91 million, a sale that transformed what had been a publicly traded company into a privately owned business. Five years later the chain changed its identity from Rubio’s Fresh Mexican Grill to Rubio’s Coastal Grill.