Restaurants going bust reaches record high

Business, Insolvency and Recovery, Property, Research

The number of restaurant businesses going bust has reached its highest level since 2010, jumping sharply in the first three quarters of 2018, according to data obtained by Price Bailey, the Top 30 accountancy firm.

According to Price Bailey, 1,123 British restaurant businesses became insolvent in the first three quarters of 2018, a 35% increase on the same period last year when 833 restaurant businesses went into insolvency. More restaurant businesses went into insolvency in the first three quarters of 2018 than the whole of 2017, averaging nearly four restaurant businesses per day.

The number of restaurant sector insolvencies has risen steadily since 2010, from 674 that year, and is projected to exceed 1,500 for the first time by the end of 2018.

Price Bailey says that the restaurant sector is facing a “perfect storm” of adverse trading conditions, which are proving particularly challenging for the mid-range casual dining market. A range of factors, including market saturation, rising costs and changing consumer spending habits are all piling the pressure on the beleaguered restaurant sector. This has forced a rising number of well-known chains into insolvency in 2018, including Byron, Gaucho and Sir Terrance Conran’s Prescott & Conran group of restaurants.

Paul Pittman, Partner at Price Bailey, comments: “The challenging trading conditions facing the restaurant sector continue to claim ever greater numbers of casualties. 2018 is already the toughest year for the sector since the financial crisis with a record number of restaurant groups calling in administrators.”

“The upper end of the sector in London is facing less pressure than the mid-range casual dining market. There was a huge private equity fuelled expansion in the mid-market, which led to over-saturation, leaving too many restaurants competing for customers. With margins still being squeezed we will continue to see the less viable businesses and sites in the sector under threat of closure.”

He adds: “Restaurants are having to contend with rising costs, such as pressure to implement the National Living Wage, and the apprenticeship levy, which shifted some of the costs of training apprentices onto employers. Brexit has also sapped consumer confidence and pushed consumers towards the food delivery market, with brands such as Just Eat and Deliveroo capitalising.”

Price Bailey points out that social media is accelerating changes in consumer tastes with people increasingly looking for novel dining experiences. As a result, restaurants can rapidly find themselves out of favour.

Paul Pittman says: “Chain restaurants are particularly vulnerable to changing consumer fads. What was once flavour of the month can quickly go out of fashion. The cost of acquiring leases and outfitting restaurants can run into the millions per site in prime city centre locations. You need a sustainable customer base to absorb that risk.”

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