More than a third (35) of the UK’s top 100 restaurant groups are now loss-making, up 75% from just 20 last year, shows a new report by UHY Hacker Young.
Trading conditions have become increasingly difficult for restaurant chains dealing with oversaturation in the market as well as rising costs.
The research comes on the back of the high-profile struggles of several major restaurant chains in recent weeks, including:
- Jamie’s Italian, started by Jamie Oliver, which has closed 12 branches as part of a Company Voluntary Arrangement (CVA) to restructure its £71.5m debt
- Byron, the burger chain, which may close up to 20 of its 67 branches following a period of paying reduced rent
- Prezzo, the Italian chain, which is expected to close some of its 300 branches as part of a restructuring
- Strada, another Italian chain, which closed 11 branches over the festive period
- Barbecoa, another Jamie Oliver chain, which entered administration in mid-February
- EAT, the sandwich chain, which was rumoured in early February to be considering closing some of its 100 branches
The research shows that pressures of competing with numerous similar ‘fast casual’ restaurants in an overcrowded high street are a major driver of many large restaurant groups registering losses over the past year.
The National Minimum Wage, which has risen by an above-inflation 19% to £7.50 per hour over the last five years, has added a substantial cost burden to large restaurant chains. From April 2018, the minimum wage will rise even further to £7.83.
Peter Kubik, partner in our London office, comments: “More than a third of the biggest companies in the restaurant sector are losing money, and there is little respite on the horizon.
“Pressures on the restaurant sector have been building for years, and the last year has pushed a number of major groups to breaking point.
“With Brexit hanging over consumers like a dark cloud, restaurants can’t expect a bailout from a surge in discretionary spending.
“Consumers only have a finite amount of spending power when it comes to eating out, and the oversaturation of the market means that groups that fall foul of changing trends can very easily fail.
“The Government has ratcheted up costs with a series of above-inflation rises in the minimum wage, and we are just weeks away from another 4.4% rise in April. That will be tough for a lot of restaurants to absorb.”