Having spent his career in the wine industry, we spoke to Guy Smith from Smith & Evans vineyard in Somerset to find out why he thinks…
The last year has proven to be a difficult time for the restaurant trade, with a number of popular high profile chains closing down and disappearing from our high streets. Recent research into the scale of the ‘casual dining crunch’ has revealed that more than 1400 UK restaurants collapsed between June 2018 and June 2019, which is a 25% increase on the year prior, and the highest number of insolvencies since 2014.
Contributing to the long list of casual dining casualties, we have seen big names such as Cote, Prezzo, Chimichanga, Casual Dining Group (owner of Café Rouge and Bella Italia), Jamie Oliver’s restaurant group and Byron announce the closure of a proportion of their outlets.
What is happening to our restaurants?
Amongst the causes of these closing restaurants, is over-capacity in the market. The previous decade following 2008’s financial crisis saw a period of significant increase in the number of eateries, particularly the roll-out of new restaurant chains, which has subsequently resulted in an over-saturated market.
As consumers have seen their income squeezed, confidence levels have declined as has 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 also had a negative impact on many restaurants.
Recent changes in the law, such as the introduction of the Apprenticeship Levy, increased employer’s pension contributions and the increase in the National Living Wage and National Minimum Wage have 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. Premium brand supermarket and home delivery dining options such as Deliveroo and Ubereats have also increased, which has undoubtedly hit demand.
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 or loss making sites.
It is a fast moving and hugely interesting sector and the right dining proposition still delivers powerful brands, but there has been a recent spate of difficult developments. 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.