Subdued consumer spending and fierce promotional activity in the UK restaurant industry could prevent some restaurant owners from affording commercial rent payments due on 25 March – the sector’s upcoming ‘Quarter Day’.
According to analysis of Begbies Traynor’s Red Flag Alert data, which monitors the financial health of UK companies, the number of UK restaurants experiencing ‘Significant’ financial distress ahead of the sector’s Quarter Day hit 11,091.
The figure is up 8% compared to the same stage last year, with the research firm blaming the financial challenges facing the sector over the past 12 months.
Following a number of high profile company voluntary arrangements (CVA) across the industry, including Jamie’s Italian, Byron and Prezzo, fears have grown that the market has become too oversaturated.
Latest data shows that sales at UK restaurants fell over the 18 months to December 2017 due to weakened consumer confidence and lower discretionary spending, Begbies Traynor said.
Meanwhile, experts warn that a “perfect storm” of challenges could force many restaurant owners into the red ahead of this week’s quarterly rent day, with rising costs, increased competition and an over‐dependence on promotional offers to drive footfall, all adding to the industry’s woes.
Julie Palmer, partner at Begbies Traynor, said: “The UK restaurant sector is facing a perfect storm of pressures ahead of this week’s quarterly rent day, with growing labour costs from the National Living Wage, subdued consumer spending and fierce competition from established high street chains, coming together to cause a spike in financial distress across the industry.
“As rising inflation continues to hit real wages, UK consumers are proving increasingly cautious when it comes to their discretionary spending, meaning that there is even more pressure on restaurants to put on margin squeezing meal deals to entice diners through their doors. Unfortunately for those restaurateurs experiencing both declining sales and rising costs, the upcoming quarterly rents payment this weekend could be too big a financial hit for many to swallow.”