Restaurant chains facing multiple cost rises in oversaturated market

High street chains feeling the pressure amidst growing competition

High street restaurant chains are facing multiple sharp cost rises in rents, business rates, ingredients and wages while already struggling in an oversaturated market.

That’s the warning from an expert at corporate recovery and business advisory firm Quantuma, speaking in the wake of news that Italian restaurant chain Prezzo is set to close 100 venues in an attempt to rescue the business.

Carl Jackson, managing partner of Quantuma, said: “We are increasingly witnessing market saturation, with the public’s disposable income just not increasing at a commensurate rate to match the number of eateries that have opened in the recent past.

“In addition to this, many restaurant chains are also facing sharp costs rises in the areas of rent, rates, wages and ingredients.

“In some cases, landlords have offered ‘rent-free periods’ for new venues – typically out of town shopping centres – which while initially attractive can easily create a ‘false’ profit position in the short-term followed by a sudden cash-flow drain when those periods expire, and rent must be paid.’’

“On top of this, rateable values are soaring depending on where the venues are based in the UK, with the impact in London potentially resulting in rises of as much as 400 per cent.

“Food inflation also means that the price of sourcing ingredients has increased, which places an increased burden on margins.

“Meanwhile, restaurants typically employ people on hourly wages based on the minimum wage, which is due to rise from £7.50 to £7.83 per hour in April.

“But they are also facing growing pressures to apply a National Living Wage which is £8.75 across the UK and as much £10.20 in London, which is having a significant impact on payroll costs alongside the costs of implementing and offering auto-enrolment to large workforces.

‘’Differentiation has also been an issue with many comparable chains bringing similar offerings to the marketplace, resulting in the need to utilise special offers to attract custom, a further negative impact on margins if the volume of sales do not increase sufficiently.”

The challenges faced by struggling restaurants was previously seen at the end of January when burger chain Byron announced it was closing up to 20 restaurants, nearly a third of its outlets.

And earlier in January, Jamie’s Italian chain announced the closure of 12 of its restaurants in a similar restructure.

Mr Jackson of Quantuma added: “To put it bluntly, the increasingly abundant sites that have been opened by restaurant chains in particular are vying for a portion of a market that is just not increasing in size.

“There are too many restaurant chains on our high streets for the marketplace to support, while that marketplace is getting much more expensive to operate within.

“The businesses involved need to take heed of what’s become a perfect storm and should take the appropriate action now, regarding cost management and efficiencies, before it’s too late.”

Ends (477 words)

Notes to Editors

Quantuma LLP is a leading corporate restructuring, insolvency and business advisory firm delivering partner-led solutions to businesses and individuals facing financial distress with offices in London, Southampton, Marlow, Watford, Brighton, Birmingham, Bristol and Manchester.