The total pre-tax profits at the UK’s Top 100 restaurants have plunged 80% in the last year to just £37 million, down from £194 million twelve months ago, shows research by UHY Hacker Young, the national accountancy group.
The drop means that pre-tax profits at the UK’s Top 100 restaurant groups have now fallen 89% from £345 million since the first quarter of 2017.
UHY Hacker Young says that the cost of closing struggling sites has weighed heavily on the profits of restaurant groups over the past two years. Household-name groups including Gaucho, Strada, and Prezzo have all shut a number of outlets in recent months as the casual dining sector deals with overcapacity.
Business restructuring, such as closing restaurants, can be an expensive operation even if it delivers longer-term cost savings. The short-term cost of terminating employee contracts and exiting tenancy agreements early can be substantial.
UHY Hacker Young says that the fall in profits also highlights the on-going challenges faced by the casual dining sector, including higher business rates, a rising minimum wage and increasing utility costs.
Of the UK’s Top 100 restaurant groups, 37 are now loss making.
Examples of restaurant groups suffering financial woes include:
- Gourmet Burger Kitchen posted a £2.6 million operating loss for the first six months of 2018 and is rumoured to be considering a Company Voluntary Agreement (CVA)
- Harry Ramsden’s, the fish and chip shop chain, has reported a £5m loss following its exit from six sites owned by the company and a further three franchise locations
- Jamie’s Italian saw sales plummet 11% in 2017 to £101m. Jamie Oliver injected £13m of his own capital into the business to prevent it from going into liquidation
Peter Kubik, Partner at UHY Hacker Young, comments: “The downward spiral in profits of restaurant groups reflects the severe difficulties that continue to impact the sector.”
“Despite the long-term benefits, closing down restaurants is often hugely expensive in the short-term. For some struggling restaurant groups that means things will get worse before they get better.”
“However, relative success stories such as Wagamama, which opened seven new UK restaurants this year, show that consumer demand for casual dining is still present.”