There are too many restaurant chains on the UK high street for the market to support, with a “perfect storm” of cost rises leaving more operators perilously positioned.
That’s the view of a leading business advisory specialist, which is warning chains to take appropriate action on cost management and efficiencies now before it’s too late.
Corporate recovery firm Quantuma said that Prezzo’s recent decision to axe nearly 100 stores highlighted the fallout from multiple sharp costs rises and oversaturation in the market.
Carl Jackson, managing partner of Quantuma, said: “We are increasingly witnessing market saturation, with the public’s disposable income just not increasing at a commensurate rate to match the number of eateries that have opened in the recent past. In addition to this, many restaurant chains are also facing sharp costs rises in the areas of rent, rates, wages and ingredients.
“In some cases, landlords have offered ‘rent-free periods’ for new venues – typically out of town shopping centres – which while initially attractive can easily create a ‘false’ profit position in the short-term followed by a sudden cash-flow drain when those periods expire, and rent must be paid.’’
Mr Jackson said that other factors were conspiring against operators, including soaring rateable values of up to 400% in London, food inflation and the impending minimum wage increase, from £7.50 to £7.83 per hour, in April.
“They are also facing growing pressures to apply a National Living Wage which is £8.75 across the UK and as much £10.20 in London, which is having a significant impact on payroll costs alongside the costs of implementing and offering auto-enrolment to large workforces,” he continued.
‘’Differentiation has also been an issue with many comparable chains bringing similar offerings to the market place, resulting in the need to utilise special offers to attract custom, a further negative impact on margins if the volume of sales do not increase sufficiently.”
The challenges faced by struggling restaurants has led to an unprecedented level of restructuring among some of the most prominent names in the industry this year. Byron announced plans to shut 20 branches in January, while Jamie’s Italian said it would close 12 of its sites.
“To put it bluntly, the increasingly abundant sites that have been opened by restaurant chains in particular are vying for a portion of a market that is just not increasing in size,” concluded Mr Jackson. “There are too many restaurant chains on our high streets for the market place to support, while that market place is getting much more expensive to operate within. The businesses involved need to take heed of what’s become a perfect storm and should take the appropriate action now, regarding cost management and efficiencies, before it’s too late.”