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Big restaurant chains see turnover rise, tough outlook for smaller businesses

By Luke Nicholls , 08-Aug-2012

Related topics: Business, Venues, Trends & Reports, Restaurant Trends, Restaurants

The top 100 restaurant chains saw turnover increase by 5.6 per cent last year, a big improvement on the 2.6 per cent increase of 2010. But the market isn't becoming any easier for smaller businesses as the beleaguered state of the UK economy is making it harder for to secure funding to expand.

The UK's largest restaurant chains grew in size by 4.9 per cent to 17,593 units by the end of last year

The UK's largest restaurant chains grew in size by 4.9 per cent to 17,593 units by the end of last year

According to data released today by foodservice consultancy Technomic, the largest restaurant chains grew in size by 4.9 per cent to 17,593 units by the end of 2011, a continued increase in growth from 3.9 per cent of the previous year.

"It is certainly encouraging to see overall industry growth rates more than double in one year," said Darren Tristano, Technomic’s managing director. "On a chain-by-chain basis, performance varied substantially, reflecting the fact that many organisations are still redefining their value propositions for today's economy and tackling various industry challenges."

However, Sam Fuller, managing director of investment bank Altium, believes that its further down the market that businesses are really struggling.

In total, the top 10 UK restaurant chains (listed below) account for almost £7.3bn, over half (52.3 per cent) of total turnover for the top 100 chains. And Fuller believes the increasingly oligopolistic restaurant market is making it difficult for smaller firms and start-ups to survive.

“I meet a lot of people who’ve got a couple of units and want to open a couple more, but it’s quite hard to get a fee out of that to be honest so we tend to just advise the bigger guys,” he said. “If someone hasn’t got a track record nowadays, they nearly always have to find that money from friends and family. In this market it’s pretty hard to get backing from banks with just an idea, unless it’s one hell of an idea.

'Undeniably harder'

“A lot of the deals that were done a few years ago had a lot of debt put into them. Every big deal that was done in 2007 and 2008 had a lot of debt in it, from Gondola through Gaucho. As a result of that, a lot of the banks are now over-exposed and they’ve got more debt in the hospitality sector than they would ideally like.

“There are still a lot of concepts coming through, but I think most of them are likely funded by individuals. The challenge is when you’ve got a couple of units and you want that next stage of funding – that’s undeniably harder.”

Fuller appeared in this month's Special Feature which looked at securing funding in the hospitality industry. To see all of our articles in that feature, click here.

Among limited-service restaurants, the largest menu categories in turnover came from burger (£2.3 bn), coffee shops (£1.5 bn) and chicken (£1.1 bn). The ranking was led, as usual, by U.S.-based McDonald’s, which generated just below £1.9 bn in turnover in 2011, followed by JD Wetherspoon (£1 bn) and Greggs (£707.6m).

Optimistic growth

Full-service restaurants experienced an optimistic growth year in 2011 with an increase of 7.1 percent in turnover. Pub chains and casual-dining restaurants showed an increase in this segment with a 7.3 and 6.8 per cent rise in sales respectively.

As the U.K.’s largest pub chain, JD Wetherspoon reported a 9.7 per cent rise in turnover to approximately £1 bn, as well as an 8.5 per cent rise in unit count to 841. Following JD Wetherspoon, casual-dining PizzaExpress reported the next highest turnover in the full-service segment at £367.5m in 2011.

The fastest growing chains in the full-service segment include Busaba Eathai (80.7 per cent growth), Jamie’s Italian (77.3 per cent) and Côte Restaurants (37.8 per cent). Busaba Eathai, interestingly, was new to the 2012 Leading 100 U.K. chains ranking - showing that there is still room in the highly competitive market for new operators.

“In theory, there should be a survival of the fittest coming through here,” added Fuller. “Most of the big operators are not rolling out as aggressively as they were a few years ago, so there are still opportunities.”

The top 10 UK restaurant groups (ranked by turnover - £MM)

  1. McDonald's - £1,872
  2. JD Wetherspoon - £1,038
  3. Greggs - £708
  4. KFC - £614
  5. Costa Coffee - £610
  6. Starbucks - £561
  7. Pizza Hut - £529
  8. Domino's - £496
  9. Subway - £473
  10. Nando's - £390

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