UK Restaurant Chains – a starving trade?

8th May, 2018

Recent months have proven to be a difficult time for the restaurant trade, with a number of our popular high profile chains closing down and disappearing from our high streets.

Yesterday the Cote restaurant chain, owned by private equity firm BC partners indicated that they were looking to shut down a series of London based eateries. This has followed a long list of so called ‘casual dining’ restaurant casualties including Prezzo, who of which are closing 94 of its restaurants – amounting to about a third of its outlets, along with all of its TexMex chain, Chimichanga. Jamie Oliver’s restaurant group have also resulted in the closure of up to 12 of its 27 outlets.

In addition to those that have already suffered, there are indications of other struggling businesses within the trade, and more closures are expected on the menu. Casual Dining Group (owner of Café Rouge and Bella Italia) in March posted an increase in losses of 18% to £60m, despite a 2.2% increase in like for like sales and back in February, Big Hospitality reported that during 2017, restaurant insolvencies went up by a fifth. It was also recorded that from the end of 2015, shares in the Restaurant Group, which owns Frankie and Benny’s and Garfunkel’s have lost nearly two thirds of their value.

What is happening to our restaurants?

It is suspected that amongst the causes of these closing restaurants, is over-capacity in the market – the previous decade having been a period of significant expansion in the number of eateries, particularly roll-outs of new restaurant chains.

As consumers have seen their income squeezed, confidence levels have declined and discretionary spend, and thus revenues for the restaurant sector, has followed.

Not only are there overall revenue pressures but substantial rises in operational costs have had a negative impact on many restaurants.

Recent changes in the law, such the introduction of the Apprenticeship Levy, increased employer’s pension contributions and the increase in the National Living Wage and National Minimum Wage has left many restaurants seeing their margins squeezed to an unsustainable level.

Combine those legislation impacts with food and drink inflation driven by devaluation of the pound, and revaluation of business rates, and rent increases, and you can see why bank and other funder attitudes have shifted.

In a bid to win over customers against competitors, restaurants have turned to ‘money-off’ coupons, discount vouchers and lowered prices, which, in many cases, have not succeeded in increasing revenues to the required extent and this has therefore only accelerated losses.

Commentators have also referred to a need to have a reduction in the number of sites operating, not only to redress the supply and demand imbalance, but also to enable the revenues from profitable outlets to be recycled back into underpinning those outlets, as opposed to either being used to finance expansion or underwriting the less profitable/ loss making sites.

Nick Farrant, Head of Food and Drink Accounting at PKF Francis Clark said:

“This is a fast moving and hugely interesting sector to work with, and the right dining proposition still delivers powerful brands, but there has been a recent spate of difficult developments.

“We assist our clients and do all we can to get their businesses back on track during these challenging times.

“Despite these trends, we are currently working with sole site operators who are looking at expansion plans, and whilst there is no doubt that times are trickier than they have been in recent years, those operators who control ‘central costs’, focus upon profit, cash and balance sheet performance, have researched their market correctly, keep their target audience needs firmly in mind, deliver a fantastic customer experience, and select the appropriate funding strategy, will be able to survive and indeed thrive.”

Any queries you have about your restaurant business, and how we can help you, please do not hesitate to get in touch.

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