EDITOR’S VIEW: Have loss-making chains become too obsessed with scale?

Andrew Seymour grayscale

The collapse of TV chef Jamie Oliver’s restaurant empire has undoubtedly been the biggest headline-maker of the past month and once again offers proof that even the most renowned faces aren’t immune to the pressures facing the wider industry.

Administrators for the chain described it as battling against a “backdrop of rising costs and brittle consumer confidence” when they set about shutting the majority of its stores immediately.

In the context of the wider market, however, Jamie’s was actually a pretty small fish in a very big pond. At the point of its collapse it had just 25 sites (three of which, at Gatwick Airport, have subsequently been saved).

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If you consider that Prezzo closed 93 restaurants, and Carluccio’s 35, during their own periods of financial difficulty in recent years, you get some perspective of the true impact that Jamie’s disappearance is likely to have on the market.

I would say the more alarming news to emerge this month is just how many other chains appear to be sailing close to the wind.

Research from UHY Hacker Young reveals that 48 of the UK’s top 100 restaurant groups are now loss-making, up from 37 last year. A year ago, the top 100 reported pre-tax profits of £102m. This time around they made an £82m loss.

UHY Hacker Young notes that closures are being forced upon the sector after it went through a period of rapid expansion bankrolled by many of the biggest private equity funded firms.

Expansion far outpaced the growth in consumer spending on eating out, with higher staffing costs and a fall in sterling pushing up input costs to create the perfect storm. It is hard to disagree with that assessment.

Despite the gloom, there are plenty of top restaurant names making a real success of things, which can only give the sector hope.

But the latest numbers reaffirm the fact that if restaurant chains are going to be successful in the long term they have to get to the right size.

Tags : Editor's viewopinionRestaurantsscale
Andrew Seymour

The author Andrew Seymour

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