Surge in restaurants suffering distress as ‘perfect storm’ grips sector
The number of restaurants experiencing ‘significant’ financial distress has surged to 11,091 in March – up 8% on a year earlier.
More than 11,000 UK restaurants are suffering financial distress amid a “perfect storm” hitting the £5.9 billion sector, according to new research.
The latest Begbies Traynor Red Flag Alert, which monitors the financial health of UK companies, has revealed that the number of restaurants experiencing “significant” financial distress surged to 11,091 in March – up 8% on a year earlier.
It follows a raft of rescue deals being struck to save chains across the industry, with a number of high-profile company voluntary arrangements (CVAs) including celebrity chef Jamie Oliver’s Jamie’s Italian, upmarket burger bar Byron and another being voted on this week for Prezzo.
Begbies warned that, with thousands of restaurants teetering on the brink ahead of quarterly rent bills due this week, many could be tipped into the red as they also face soaring costs and weaker consumer spending.
Julie Palmer, a partner at Begbies Traynor, said: “The UK restaurant sector is facing a perfect storm of pressures ahead of this week’s quarterly rent day, with growing labour costs from the National Living Wage, subdued consumer spending and fierce competition from established high street chains, coming together to cause a spike in financial distress across the industry.”
She added: “Unfortunately for those restaurateurs experiencing both declining sales and rising costs, the upcoming quarterly rents payment this weekend could be too big a financial hit for many to swallow.”
Restaurant chains and retailers are among firms that have been hit hardest following the Brexit vote, with surging inflation and weak consumer confidence adding to higher wage costs and eye-watering business rate rises since last year’s revaluation.
This has come after many restaurants expanded rapidly to cater for a pre-Brexit jump in demand for eating out, which has since tapered off.
“UK consumers are proving increasingly cautious when it comes to their discretionary spending, meaning that there is even more pressure on restaurants to put on margin-squeezing meal deals to entice diners through their doors,” said Ms Palmer.