The number of restaurants in Scotland going bust last year increased by 86.3% according to new analysis of the sector by leading accountants and business advisers French Duncan LLP. The firm has analysed official Insolvency Service statistics and found that annual restaurant failures increased from 73 in 2017 to 136 in 2018 which is equivalent to one restaurant going bust every three days. This is the highest number of restaurant failures on record in any one year.
Restaurant failures accounted for 13.9% of all corporate failures in Scotland last year highlighting just how difficult the situation is for the sector.
Eileen Blackburn, head of Restructuring and Debt Advisory at French Duncan LLP, said: “These figures once again highlight the difficulties the restaurant sector is facing. A near doubling of the number of restaurant failures in one year is a quite alarming reflection of the state of the sector.”
“This is undoubtedly due to the continuing problems faced by the High Street which has seen restaurants and retailers hit badly over the last year. The issues facing the High Street continue with high business rates and inflexible landlords contributing greatly to the problem. Local councils and landlords must accept that they cannot continue to milk High Street businesses for cash as too often the result are more closures and more boarded up outlets.”
Eileen continued: “Of greater concern is that these figures are likely to be the tip of the iceberg as far as restaurant closures are concerned. Far more restaurants close without entering into a formal insolvency process so the numbers struggling on a day to day basis will be huge. Opening a restaurant has always been difficult but there are greater complications with high rents, high rates, increased staff costs, and, for those importing ingredients, higher supply costs.”
“There is also an issue with over-capacity in the sector, and rising costs have resulted in many restaurants simply being unable to continue to operate. Some Scottish operators may also be operating on a model that is now outmoded. The discount voucher market which can be a useful tool in the short term also lowers revenue as consumers shop around for the next deal. Vouchers can lead to a vicious circle of voucher dependence, lower income, and reduced profitability and, ultimately, closure.”
“Many restaurants are also being hit by the growth of delivery services which has opened up an enormous new market from food outlets that never delivered before giving consumers the option of saving some money by eating takeaways at home. Equally the pub food market continues to grow both in the form of successful chains and individual outlets allowing for an evening out at less cost than most restaurants can manage.”
Eileen concluded: “It is clear that the restaurant market is experiencing an extremely difficult time. There are so many issues of higher costs, lower demand, and council and landlord inflexibility that it is a brave person that enters the market at the moment. Unfortunately, these very high figures may only be the beginning of continued difficulties for the sector in the coming years.”