The UK’s top 100 restaurant groups lost £571m in the year leading up to the first lockdown – underlining the perilous position that many operators were facing even before they were ordered to close.
Research from UHY Hacker Young said the combined losses for the year to March 2020 represented an increase of 112% compared with £269m figure recorded the year before.
Peter Kubik, turnaround and recovery partner at the accountancy firm’s London office, said the fact that these losses only run up to the start of the lockdown meant it is inevitable that they will worsen again in the coming months.
He commented: “These figures reveal how seriously the UK restaurant industry was already struggling pre-pandemic. The most worrying part is the restaurants will still be having to absorb the impacts of lockdowns for weeks or months to come.
“The government has stepped in to help but it’s likely that even more will need to be done – very few industries have been hit as hard as restaurants. At the very least the hospitality VAT cut will almost certainly have to be extended.
“The hospitality industry is on a knife edge – its survival is largely dependent on people feeling safe and returning to restaurants which could be potentially months away.”
UKHospitality, the trade association for the hospitality industry, has urged the Government to do more to help the sector by extending the reduced 5% rate of VAT on the sector until the end of 2021 to prevent a wave of redundancies. VAT is scheduled to revert back to 20% at the end of March.
Mr Kubik said restaurants have become even more reliant on home delivery services like Deliveroo and Uber Eats over the past year to generate sales and stay afloat.
But he warned that this can be a double-edged sword as commissions of up to 35% plus VAT are taken from the restaurants by the platforms.
Alcohol sales – traditionally a key high-margin offering for restaurants – are also sharply lower through these apps than for in-restaurant meals where diners are more highly likely to buy alcohol with their meal.
UHY Hacker Young says a wave of restructuring is likely to continue in the restaurant sector, particularly the use of Company Voluntary Arrangements (CVAs) to keep businesses afloat.
CVAs allow businesses to renegotiate their debts such as property lease payments so they can continue trading. Many UK restaurant groups have had to launch a CVA while others have been sold via administrations.
The Restaurant Group, owner of the Wagamama, Frankie & Benny’s and Chiquito chains, recently announced plans to use a CVA to restructure the business including closing 125 restaurants.
CVAs have also been used by Leon, Pizza Express and Yo! Sushi among others since the start of the pandemic.