Restaurant sector overstretch fuels fears of casual dining crunch

30 April 2018 Authored by Consultancy.uk

The UK has witnessed a string of casual dining chains looking to find efficiency savings, or entering into full-blown restructuring efforts in 2018, in a casual dining crunch which threatens thousands of jobs across the country. While the sector saw outlets in positive growth last year, a new report suggests that this trend is likely to continue throughout 2018, as businesses attempt to rein in spending amid a saturated market.

In late 2017 and early 2018, a growing number of dining chains have been found to be floundering, amid poor sales figures and mounting debt. Notably this saw both gourmet burger store Byron and TV chef Jamie Oliver’s Jamie’s Italian chain enter into Company Voluntary Arrangements (CVAs), in a bid to secure their futures. In the case of Byron, this is likely to lead to 15-20 closures out of 67 sites, while Jamie Oliver has announced 12 Jamie’s Italian closures in 2018, on top of seven closed last year, leaving the chain with 25 surviving locations.

What was soon to be dubbed the ‘casual dining crunch’ then saw Italian chains Prezzo and Carluccio’s both enlist the help of consulting firms to aid turnaround efforts. Carluccio’s is working with Big Four firm KPMG to look into its options, as while revenue climbed 2.7% to £140 million for the year leading up to September 25th 2016, its pre-tax profits took a catastrophic tumble from £5.2 million to £982,000. Meanwhile, Prezzo became the latest casual dining group to enter a CVA, which is being handled by AlixPartners, with TPG Capital, Prezzo’s US private equity backer, is tipped to axe 1,500 jobs across the UK, after documents revealed the business has racked up debts of £220 million to banks and suppliers.

Increase in number of restaurants in past 12 months

According to a new report from AlixPartners and analyst firm CGA, however, the signs of this bursting bubble have been visible for a sustained period of time. Many casual dining brands continued to expand on British high streets over the last 12 months, despite the host of challenges facing the eating and drinking out sector – including the repressed wages of the bulk of the UK’s working population, which have led many consumers to scale back on ‘luxury spending’, and fears around access to resources and talent following Brexit – fuelling concerns about an over saturation of the market.

The latest edition of the two firms’ Market Growth Monitor revealed that while Britain’s drink-led pubs and bars saw a small decline over the last year – Britain had 122,221 licensed premises at December 2017, a decline of only 0.3% – Britain’s casual dining brands remained in growth last year. The country now has 16.7% more restaurants than in 2012, and the leading source of this growth was on UK high streets, with these casual restaurant chains’ numbers rising by 0.6% by the close of 2017.

Total number of licensed premises in Britain at December 2017

As wages in the UK look unlikely to grow, meaning consumer spending power remains reduced while a growing market competes for the business of a stable, ageing population, the researchers suggested that many operators will likely scale back their new opening plans over this year. Rising property costs are also likely to play a role in this, as are the potential for food prices soaring post-Brexit, as tariffs may hit imported ingredients hard, as with a range of other sectors.

Commenting on the study, AlixPartners Managing Director Graeme Smith said, “With some casual dining operators announcing restaurant closures at the start of 2018, there has been much talk of over-supply in many of Britain’s cities and towns. But where exactly is supply exceeding demand? With consumer habits changing so fast, it can be hard to tell – but the Market Growth Monitor… shows some of the places that have been particular targets for new openings in the last five years.”

Decrease in number of licensed premises in suburban locations in past 12 months

The areas looking to be hit particularly hard by the casual dining crunch are suburban areas, and London. As the price of living in the nation’s capital city continues to rise, tough trading conditions across the city hit the casual dining sector hard. While inner London matched the national average of 0.6% growth in the sector, outer London saw total licensed premises fall by 1.9% in the year. The suburban locations of chains in general were also stung – albeit in a smaller portion than in London – with licensed premises in those locations falling by 0.8%.

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