Closure on the menu for restaurants as cost pressures mount

THOUSANDS of restaurants have at least a 30% chance of going insolvent within the next three years as Brexit raises costs and disposable incomes stagnate, a Birmingham accountancy firm has said.

Moore Stephens, based on Calthorpe Road in Edgbaston, said the sharp fall in sterling since the Brexit vote had added to the pressure on the sector by increasing the cost of imports for restaurants.

It has predicted 5,570 restaurants are at risk.

The UK imports 48% of its food and many restaurants rely heavily on imported food and wine.

The firm said the restaurant market had become increasingly competitive as a regular supply of new entrants launched innovate food concepts in order to differentiate themselves.

This churn in the popularity of different cuisines and food styles has led to some restaurants facing insolvency as new entrants and innovations leave the offerings of existing incumbents looking ‘dated’.

The influx of new participants also provides consumers with a lot of choice and results in restaurants cutting prices or offering ‘special offers’ to remain competitive.

As well as higher raw material costs, restaurant companies have also seen the cost of labour increase. The government raised the National Minimum Wage to £7.20 from £6.70 earlier this year which has put added strain on restaurants already struggling to remain profitable. The government has announced that it intends to raise the National Minimum Wage to £7.50 in April next year.

Additionally, stagnating disposable incomes has impacted the appetite for consumers to eat out. The UK average gross disposable household income increased just 0.5%, from £17,872 to £17,965 over the last year.

It is not just the independents at risk. Even some of the largest restaurant companies have struggled with weak trading.

The Restaurant Group announced earlier this year plans to close 33 restaurants across the UK, including 14 Frankie & Benny’s branches and 11 Chiquito restaurants, after a ‘challenging trading period’.

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.”

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