According to research by accountancy firm Wilkins Kennedy, a total of 684 restaurant groups became insolvent over the whole of 2011 – an increase of 19 per cent from 576 in 2010.
Anthony Cork, partner at Wilkins Kennedy, believes that the increase can be put down to the renewed economic downturn which has led to consumers cutting their discretionary spending on eating out, while restaurants have also been unable to pass on the recent increase in VAT, the latest increase in minimum wages and rising food costs to their customers.
“It is the proverbial ‘perfect storm’, but the sheer number of restaurant groups that have been sunk by it is still surprising,” said Cork. “When income is falling, businesses can normally bail themselves out by cost-cutting - but restaurants have a very high percentage of their costs fixed by the property leases that they have to sign with their landlords.
“Under the terms of most UK restaurant leases, rents can only ever go up – even if the real rental value of that restaurant has plunged. That means that falling turnover can quickly plunge a restaurant into loss.”
Forced to pull the plug
Cork goes on to reveal that banks and other stakeholders were, in some circumstances, forced to pull the plug on many struggling restaurants in the run-up to Christmas.
“If a restaurant can’t trade profitably in the build-up to Christmas, then banks and other stakeholders might think it best to cut their losses sooner rather than to wait until January - and incur more losses.
“Sales to corporate clients, which are traditionally high during the festive season, were cut last year with a lot of public sector and financial service businesses undergoing a display of austerity. Entertainment budgets are still well below their pre-recession levels and are likely to remain so for some time.
“Restaurants have also had to face some one off problems last year such as the interruption to trade caused by the summer’s riots. This year they will have the uncertain trading conditions caused by the Olympics to contend with – especially in the London area.
“Restaurants might benefit from the influx of tourists but could also lose out if their regular, local customers shun the Games and go on holiday abroad.”
Alcohol duty
In addition to food prices, the rise in alcohol duty announced in April 2011’s budget has contributed to the erosion of restaurants’ profit margins.
Alcohol duty rates rose by two per cent above the Retail Price Index in March 2011, adding four pence to the price of a pint of beer, 15 pence to the price of a bottle of wine and 54 pence to the price of a bottle of spirits.
Recent insolvencies in the restaurant sector range from iconic roadside chain Little Chef to Moshi Moshi, the Japanese restaurant in London's Liverpool Street that introduced the first conveyer-belt sushi to the UK.
5 comments (Comments are now closed)
something is wrong
I lived three years in the UK (I'm from Germany) and I realized when you go in a pub or restaurant (I like English pubs) they have often the same menu - after a while I understood these are chains. I think this is one of the problem because it's a little bit boring. We don't have this so often in Germany. Every little pub or restaurant is different. The system is different. As a owner you can choose going alone or with a brewery. If you go with a brewery you only have to buy the beer from them but you are still free to create the menu, it's still your own facility, the brewery paid a part of the equipment and you have to buy the beer from them which is more expensive, that's all. I'm honest, an other problem is you can't smoke anymore in a pub. So when you are a smoker, you buy the beer in the supermarket and sit at home with a cigarette and the beer.... it's not healthy, I know, but at least in Germany you can find pubs for smokers. The law is different, also in the different German counties. So the government in the UK is not very nice to the pub owners to give them a gap, give them a little bit freedom. I understand not to smoke in a restaurant.. but in a pub ..??? And on top of all that the comment from David is true, people want experience. I learned that 20 years ago in the hotel management school in Leipzig. BUT: I like to go in English pubs ... I like the beer and I like the atmosphere. It's a shame that the English government leaves them alone in the big fight. It's a part of England and soon we can't find these lovely pubs anymore and never we will get them back.
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Posted by Elke Lugert
15 February 2012 | 09h35
Restaurants struggling? Pubs struggling? Help at hand..
See People 1st article -
People 1st launches workshop to help ‘struggling’ new publicans
Half of new publicans and nightclub owners admit they are ‘struggling’ because they don’t know where to go for specialist advice and guidance or setting up and running their own business.
http://www.bighospitality.co.uk/Trends-Reports/People-1st-launches-workshop-to-help-struggling-new-publicans
http://www.thebusinessbootcamp.org/bootcamps/pub-clubs
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Posted by Chris Jefferies
15 February 2012 | 08h53
No Way Out
As the owner of a restaurant - we can see no way out. Landlords and Councils would rather see empty shops than realistically help by lowering rent/rates or even give us a break. I agree with everything Marie has said - as we fight desperately to survive and employ people so they too can survive, we only have so much time we can do so before we all become unemployed and start claiming benefits ourselves. We have done nothing but work hard - is there anyone out there with some common sense who can see this is not the way forward!
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Posted by Sarah Laverty
14 February 2012 | 19h08
Level playing field
Owning a pub with dining it does feel like we are up against it on all sides with all the points made. We don't sell clothes, electrical, homewares etc. but the supermarkets run cafes, sell alcohol, very often at prices below what we can buy for, plus, more recently, 'dine in' complete meals with no vat payable. Pre election, Cameron promised he would help our industry, we are still waiting, not so patiently now. We lost our corner shops to the supermarkets and the demise of the individual pub/restaurant could just as easily go the same way as the juggernauts of supermarkets and large chains roll on. We don't have the financial 'cushion' or resources to this withstand the relentless onslaught.
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Posted by Marie Stevens
14 February 2012 | 15h04
Quality?
Would be interesting to know what part of the market these were. My view is that the budget trade is consolidating ie independents die as pub chains gain, but the fine-dine market (usually with lifestyle rich owners) is growing. People want an experience, not just a meal.
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Posted by David Atherton
14 February 2012 | 11h54
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