UK’s top 100 restaurant groups see profits slide by 64%

Profits of the UK’s top 100 restaurant groups fell by a collective 64% in 2017, with 35 now loss-making – up 75% in just a year – according to research by accountancy firm UHY Hacker.

An oversaturated market and an impending hike in the minimum wage has put particular pressure on restaurants, plus competition with “fast casual” restaurants and rising costs. The combination has pushed a total of 25 restaurant groups in the UK to into the loss-making category – a 75% increase on the previous year.

Total pre-tax profits at the top 100 firms have plummeted by 64% in the past year, from £345m to £125m, as reported by The Telegraph. 

“The restaurant industry has grown ahead of demand in recent years and is now going through a necessary period of consolidation and restricting to remove excess capacity,” said Peter Kubik, partner at UHY Hacker Young. “The industry’s woes should be temporary while it deals with this process, as long as consumer confidence can be maintained.”

The National Minimum Wage, which has risen by an above-inflation 19% to £7.50 per hour over the last five years, has added a “substantial cost burden” to large restaurant chains, said the firm, noting that from April 2018, the minimum wage will rise even further to £7.83.

“More than a third of the biggest companies in the restaurant sector are losing money, and there is little respite on the horizon,” said Kubik. “Pressures on the restaurant sector have been building for years, and the last year has pushed a number of major groups to breaking point. With Brexit hanging over consumers like a dark cloud, restaurants can’t expect a bailout from a surge in discretionary spending. Consumers only have a finite amount of spending power when it comes to eating out, and the oversaturation of the market means that groups that fall foul of changing trends can very easily fail.”

The research follows a number of high-profile closures and restructuring of restaurant chains, including Prezzo, Jamie’s Italian and Strada, in a bid to cut costs.

Jamie’s Italian, founded by Jamie Oliver, closed a further 12 branches in 2017 as part of a Company Voluntary Arrangement (CVA) to restructure its £71.5m debt, said UHY Hacker. Barbecoa, another Jamie Oliver chain, entered administration in mid-February.

Byron, the burger chain, may close up to 20 of its 67 branches following a period of paying reduced rent, while Prezzo, the Italian chain, confirmed the planned closure of 94 of its restaurants this morning as part of a restructuring. Strada, another Italian chain, closed 11 branches over the festive period.

“The Government has ratcheted up costs with a series of above-inflation rises in the minimum wage, and we are just weeks away from another 4.4% rise in April,” warned Kubik. “That will be tough for a lot of restaurants to absorb.”

The rise of food delivery app Deliveroo has also had a detrimental impact, depriving restaurants of sales of alcohol and other drinks, which typically offer higher profit margins.