New research shows that subdued consumer spending and fierce promotional activity in the UK’s £5.9bn restaurant industry has contributed to a significant increase in financial distress across the sector over the past year, as experts warn that some restaurant owners struggled to afford the commercial rent payments due on 25 March.
According to new analysis of Begbies Traynor’s Red Flag Alert, which monitors the financial health of UK companies, the number of UK restaurants experiencing ‘significant’ financial distress ahead of the sector’s Quarter Day hit 11,09; an increase of 8% compared to the same stage last year.
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 clearly been feeling the pinch as a result of declining consumer spending, with the latest data showing 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, withgrowing labour costs from the National Living Wage, subdued consumer spending and fierce competitionfrom 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 comesto their discretionary spending, meaning that there is even more pressure on restaurants to put on marginsqueezing meal deals to entice diners through their doors. 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.”