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More than 1,400 restaurants closed in the UK in the year ending June 2019, a jump of 25% from the previous year.
With some big-name restaurant chains to collapse, including celebrity chef Jamie Oliver’s Jamie’s Italian. The highly publicised insolvency led to the loss of nearly 1500 jobs in the UK.
There are many reasons for the shakeup in the restaurant industry, particularly in the midmarket sector, including consumer sentiment due to Brexit uncertainty and the devaluation of the pound, however, research published by the accountancy firm UHY Hacker Young cites the growth of the fast-casual dining scene as a major reason for the highest number of insolvencies since at least 2014.
Fast-casual has seen rapid growth since the 2008 financial crisis and has resulted in an over-saturated mid-market. The research found that it was not only the big-name restaurant chains affected but that hundreds of small, independent restaurants had also collapsed under the strain.
“The crisis in the restaurant sector has been presented as a problem only for the chains that had lost touch with their customers,” Peter Kubik, a partner at UHY Hacker Young, said. “That’s overlooking the hundreds of small independent restaurants that have become insolvent.
“Good restaurants and bad have all struggled from overcapacity, weak consumer spending and surging costs. Having a loyal following is great but if that loyal following stops going out then you have a problem. The number of restaurants whose sales are at or near capacity is pretty small – they’re the exception.”
The research claims that after the market ‘shakeout’ only the restaurants with strong brand loyalty and differentiated offering will survive.
“For those businesses that are suffering distress, aggressive management of cash flow will be key in the coming months,” Kubik said. “Unfortunately, the sector can’t really expect banks to be as generous with their lending, especially as the sector’s current problems are so well known.”
The research does not paint a rosy picture and with restaurants already facing myriad challenges such staff retention and soaring insurance costs, a declining market amid heightened competition could spell sleepless nights for restaurateurs both in the UK and abroad.
It is said that 60% of restaurants fail in their first year and 80% of them fail in the first five years. With the market in the UK more unstable than at any time since 2014 and with no sign to Brexit uncertainty in sight, the waters remain choppy for restaurateurs.
