Restaurant industry experiencing ‘significant increase in financial distress’

New research has shown that subdued consumer spending and ‘fierce’  promotional activity in the UK’s restaurant industry has contributed to a significant increase in financial distress across the sector over the past year.

Experts also warned that some restaurant owners may struggle to afford the commercial rent payments due on 25 March; the sector’s upcoming Quarter Day.

According to new analysis of Begbies Traynor’s Red Flag Alert data, which monitors the financial health of UK companies, the number of restaurants experiencing ‘significant’ financial distress ahead of the sector’s Quarter Day was 11,091 (as at 13 March 2018); an 8% increase compared to the same stage last year (10,228).

Following a number of high profile CVAs (company voluntary agreements) across the industry, including Jamie’s Italian, Byron and another expected from Prezzo, the UK restaurant sector has been feeling the effects of declining consumer spending.

The latest data showed that sales at UK restaurants fell over the 18 months to December 2017 due to weakened consumer confidence and lower discretionary spending.

Meanwhile, experts warn that a “perfect storm” of challenges could force many restaurant owners into the red ahead of this week’s quarterly rent day, with rising costs, increased competition and an over‐dependence on promotional offers to drive footfall, all adding to the industry’s woes.

Julie Palmer, 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.

“As rising inflation continues to hit real wages, 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.”

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.”