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Thousands of Restaurant Companies Risk Closure as Costs Rise THOUSANDS OF UK restaurant businesses could be at risk of going out of business over the next three years, as the fall in the value of sterling raises costs for imported food and threatens to squeeze consumer spending.
The Dishwasher Man
December 2016
According to a study by accountancy firm Moore Stephens over 5,500 restaurant companies have a 30 per cent chance of going bust by the end of 2019. The political fallout following the vote to leave the EU in June has resulted in prolonged economic uncertainty, and the value of the pound is now ten per cent less against the Euro than before the Brexit vote. The UK imports 48% of its food, according to government figures, and many restaurants rely heavily on imported food and wine. The cost of labour has also increased, after the government raised the national minimum wage from £6.70 to £7.20 in April, with a further rise to £7.50 to take place next April. Adding to the problem of rising costs is “flatlining disposable incomes”, the amount households have left to spend after tax and bills have been paid. The average gross disposable household income increased by only 0.5% over the last year, from £17,872 to £17,965, Moore Stephens said, quoting official data. 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 year with the Restaurant 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.” The analysis by Moore Stephens follows a report by Prestige Purchasing which warned foodservice operators and caterers that foodservice inflation will hit 3.4% next year, driven by currency fluctuations, political uncertainty and the unknown outcome of trade deals. Speaking at the annual Food Inflation Event in London earlier this month by that the Shaun Allen, Purchasing Operations Director at Prestige Purchasing warned the foodservice sector that, “What we’ve seen so far this year is that inflation for the foodservice sector is running at 0.5%. Movement in the exchange rate alone, has put up to £10.8bn worth of pressure on the UK’s food and drink value”. Allen continues, “Next year, with uncertainty around Russian sanctions, Brexit, the Trump administration, coupled with a cut of 4.5% in oil production, and the currency exchange volatility that all this will bring, we can expect inflation for the foodservice sector to experience a sharp rise”.
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