Rising Costs Puts Restaurant Companies At Risk

portThousands of restaurant businesses in Britain run the risk of insolvency because the fall in sterling since the Brexit vote has raised the cost of imported food and wine, an accountancy firm Moore Stephens has warned.

Moore Stephens says that 5,570 restaurant businesses have at least a 30% chance of insolvency in the next three years, due to inflationary pressures (increasing import costs) and stagnating disposable incomes. The UK imports 48% of its food and many restaurants rely heavily on imported food and wine, Moore Stephens said. Added to that, the cost of labour has also increased, following the rise in the national minimum wage from £6.70 to £7.20 in April, with a further rise to £7.50 to take place next April.

Furthermore, disposable incomes have remained static, with just an 0.5% increase, from £17,872 to £17,965, over the last year according to analysis of ONS figures.

The company also pointed to the rising popularity of different cuisines and food styles that has seen a huge market expansion leaving existing operators struggling as fresh innovative new entrants take the lead.

Some of the UK’s of the biggest restaurant companies have struggled this yearwith the Restaurnt group, closing 33 outlets which include 14 Frankie & Benny’s and 11 Chiquito branches. It also plans to close its flagship Garfunkels restaurant on the Strand in London.

Mike Finch, restructuring partner at Moore Stephens, said: “It’s been a tough year for many restaurants in the face of rising costs and fierce competition.

“It is unrealistic to expect UK restaurant groups to avoid the impact of the fall in the pound by substituting for UK produce – they are going to face a big hit. Restaurants have to make tough decisions as to how much they try to pass on to consumers; too much and they risk losing business, too little and they lose margin.

“Fluctuations in the foreign exchange markets have hit small and medium sized restaurant businesses particularly hard as they have tighter financial constraints and are less likely to negotiate long term supply contracts. All this comes at a time when many consumers are likely to be very price conscious.”

“The high number of potential insolvencies over the next year shows just how fragile finances can be in this sector and demonstrates the importance of careful financial management.”

“There may be further challenges to come as the UK’s trading agreements with Europe remain uncertain. Many in the restaurant industry would consider the idea of additional import tariffs on foodstuffs with horror.”