At the start of last month, we commented on the rise of insolvencies which had hit the construction industry, citing Carillion’s collapse at the start of the year as a significant factor. Not only was this a blow to the industry itself, but thousands of subcontractors lost work and were left with significant debt when the multinational outsourcing provider that held numerous contracts on various projects across the UK went into compulsory liquidation. However, it is not only the construction industry which has been hit hard, with many other industries, such as the retail sector, also experiencing extremely challenging times.

With the reported surge of insolvencies, our focus of attention brings us to the once booming UK restaurant industry, highlighting some of the major factors which have left a “dark cloud” hanging over the industry. In addition to this, it appears as if a new phenomenon is also now impacting the industry in a negative manner.

It was 18 months ago that PCR discussed some of the reasons as to why more and more restaurants were running the risk of insolvency in an industry which is already well known to be fiercely competitive. Some contributing factors towards a growing number of restaurant insolvencies are a direct result of the rising costs of rent for premises, an increase in competition, decreasing demand and the uncertainty of Brexit. The cost of labour increasing in line with the National Minimum and Living Wage rates has also had an adverse effect with experts even suggesting modern day technology plays a pivotal role. App based companies such as Deliveroo and Uber Eats have created a conundrum in the industry by allowing people to place orders quickly and easily from their favourite restaurant or takeaways in a matter of minutes, resulting in lower average spend and delivery to your door. All in all, this has seen a reduction of profit for many restaurant owners with some notable high-profile casualties including Byron and Jamie’s Italian, which have closed a number of their restaurants across the country. Most recently, Gourmet Burger Kitchen (GBK) had filed for a Company Voluntary Arrangement (CVA) – subject to approval, having earmarked 17 restaurants for closure.

However, an interesting reason which has also been affecting the industry is people not turning up for bookings or no-shows as they are often referred to. The overall impact of these no-shows has meant that restaurants are often having to hire more staff and end up placing a larger amount of orders for food deliveries. Of course, these no-show bookings are not only resulting in lost revenue, but also producing excess costs for the business resulting from the over-staffing of a half empty restaurant.

With the impact of no-shows accounting for 5-20 percent of the problem, it is yet another major headache facing the industry which has already seen 984 restaurants across the UK fall into administration in 2017 (Insolvency statistics: October to December 2017).

What is being done to tackle the issue?
Many restaurants have started to react to this by implementing measures to reduce such scenarios. For example, restaurant owners are advising staff to request non-refundable deposits, selling prepaid tickets, or are issuing fines if diners don’t show up and haven’t notified them. However, Karen Williams, who is the owner of The Mulberry Tree restaurant in Kent, which has twice been voted Taste of Kent Restaurant of the Year, doesn’t think such a method would work well for her business. She commented that as it is a rural restaurant, The Mulberry Tree would risk losing customers if she asks for credit card details with bookings.

Whether adopting such a strategy will work in the long-run remains to be seen, but what is clear is that restaurant owners face an uncertain future in today’s current volatile economic climate.

The worrying trend has been creeping up in the industry over the past few years with over 820 restaurants and bars closing due to a lack of finances in 2016, with the number increasing to 1,000 in 2017.

How we can help
With the fiercely competitive restaurant industry experiencing an increase in the number of restaurants and bars closing, it is clear the sector will be facing an uncertain future in the short term at the very least. If you are the owner of a restaurant, PCR can assist you with a turnaround or a recovery which may ultimately save your business going forward. It is imperative that if you are worried about your business then you should seek advice as soon as possible as there will likely be more options available. Additionally, we can also assist with the understanding of some of the legal and commercial complexities that may arise when dealing with businesses in the restaurant sector.

Ahmed Ali

Practice Development Executive 

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