The research comes in the wake of several recent high-profile examples of restaurants chains being forced to restructure or to undertake large scale closures across their portfolio of restaurants.
The Casual Dining Group, which owns High Street chains Café Rouge and Bella Italia, is one of the most recent to report difficult trading with an 18% increase in losses to May 2017 to £60 million.
UHY Hacker Young explains that major drivers behind the fall in profitability across the sector include the effects of over expansion coinciding with soaring costs for restaurants such as: rising business rates, increased supplier and staff costs and poor footfall.
Previous research from UHY Hacker Young revealed that 35 of the UK’s Top 100 restaurant groups are now loss-making – an increase of 75% in the past year – as trading conditions have become increasingly difficult.
Although the Chancellor has brought forward a planned cut to business rate rises by two years (to 2018), UHY Hacker Young says that more could be done by the Government to help the sector, in particular smaller restaurants.
Recently a group of major restaurant bosses, including the chief executives of Bill’s and the Casual Dining Group, wrote a letter to the Chancellor asking for a ‘root and branch’ reform of business rates.
Peter Kubik, Partner at UHY Hacker Young, comments: “The restaurant industry has grown ahead of demand in recent years and is now going through a necessary period of consolidation and restructuring to remove excess capacity. The industry’s woes should be temporary while it deals with this process, as long as consumer confidence can be maintained.”
“Our view is that many of these chains that are running at a loss are very sustainable businesses once those excess branches are shed.”
“Trading conditions over the past year in particular have become more difficult for restaurants, particularly with rising inflation and recent dips in high street footfall.”
“Above-inflation rises in the National Minimum Wage are very hard to sustain in low margin businesses.”
“The rise of Deliveroo has also had a mixed impact on restaurants because it has often deprived them of sales of alcohol and other drinks, which are normally high-margin sales in restaurants.”
“The Government is moving in the right direction in reducing business rates, but more can be done. Some commentators say that rates for some businesses could rise by over £24,000 in the next five years.”