Deloitte to oversee Gaucho administration with 1,300 jobs at stake

23 July 2018 Consultancy.uk

The latest victim of the continued consumer crunch in the UK is Argentine-themed restaurant group Gaucho. The organisation has suffered from a major decline in sales across its Cau brand in particular – with 500 of its UK jobs already being axed – and has appointed Deloitte as its administrator.

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. In the year leading up to the end of March 2018, the number of restaurants in the UK fell for the first time in eight years, as a private equity-fuelled bubble of expansion suddenly burst at a particularly problematic moment, as a saturated market was left to face a squeeze amid rising business rates and a slowdown in consumer spending, and as inflation – especially regarding food prices – has continued to outstrip stagnant wage increases.

According to data from analysts CGA and consultancy AlixPartners (often engaged in corporate recovery work) on average, two restaurants a week closed over the last year, including casual dining chains, upmarket restaurants and independent establishments. With no sudden rise in the average wage of the nation on the cards, and with Brexit’s 2019 deadline fast approaching, sending the value of the pound downward, this trend is likely to continue throughout 2018.

Deloitte poised to oversee Gaucho administration with 1,500 jobs at stake

Even the World Cup, which was spoken of as a major force for spending does not seem to have altered the fortunes of the industry. In fact, while the World Cup is thought to have injected a £1.6 billion boost for the UK economy – as England’s unexpected semi-final prompted previously cautious consumers to spend a little more in celebration – according to Julie Palmer, a Partner at insolvency specialist Begbies Traynor, sit-down eateries had actually suffered from the World Cup and recent hot weather, which had shifted spending towards pubs or eating and drinking at home.

Palmer told the UK press, “The sector has had a torrid time with wage and rent inflation taking a bite out of thin margins combined with high levels of competition for squeezed consumer spending. The recent consumer shift from spending in the casual dining sector to wet-led pubs, takeaway restaurants and supermarkets as the UK sat down to enjoy the World Cup has further compounded the challenges facing the sector.”

The first major victim of this further decline in revenues looks set to be Gaucho. As with a number of firms to have collapsed amid the consumer crunch of 2018, Gaucho has a recent history featuring a purchase by a private equity firm. Equistone bought the Gaucho group back in January 2016, having previously backed a management buyout in 2005. In January 2018, Gaucho also hired Oliver Meakin, the former boss of the electronics store Maplin, which fell into administration in February.

Poor sales

A spokesperson for Equistone said of Gaucho’s troubles, “Equistone has been a supportive majority shareholder to Gaucho Group since its investment in 2016, working closely with the company to address the challenges presented by the adverse trading conditions that have negatively impacted the UK casual dining sector as a whole. Despite Equistone having presented Gaucho’s lenders with, and committed to funding, a business plan that would have maintained the company as a going concern, we understand that a notice of intention to appoint administrators has been submitted.”

The Gaucho group also owns 22 outlets of Cau, exemplifies the plummet in the brand’s demand. Cau serves burgers, steak dinners and brunch with a Buenos Aires theme, and has suffered sales fall in double digits for more than a year amid heavy competition and a squeeze on consumer spending.

Now, after last-ditch talks with potential buyers failed to yield a suitable buyer, the whole Gaucho group has collapsed. Suitors of the Argentine-themed restaurant group included former Pizza Express backer Hugh Osmond; Martin Williams, Gaucho’s former Managing Director who now runs the M restaurant chain; Gaucho’s existing management team backed by Core Capital, part of the private equity firm ESO Capital; and Limerston Capital. However, talks ran out of time, as the business was unable to meet a tax bill of more than £1 million, while the company also owed £50 million to its banks.

Days before its collapse, the group filed a notice of intent to appoint Deloitte as administrator – a role the Big Four firm is already performing for PoundWorld – a legal process which gives the company 10 days of protection from creditors. However, Gaucho was unable to use this time to find a rescue plan, and fell into administration within the following days. Deloitte said that Cau, which has 22 outlets in the UK and employs 540 people, will close immediately and the 16 remaining Gaucho outlets will continue to trade while administrators look for a buyer. Should Deloitte be unable to find one, there are a further 765 staff member employed in the Gaucho restaurants and the group’s head office, whose jobs may be at risk.

Matt Smith, a joint administrator from Deloitte, said, “Unfortunately the Cau brand has struggled in the oversupplied casual dining sector with rapid over-expansion, poor site selection, onerous lease arrangements and a fundamentally poor guest proposition. As such, the decision has been made to close this loss-making part of the group with immediate effect, unfortunately resulting in today’s redundancies.”