A fifth of UK restaurants at risk of going insolvent

31-10-2017

A fifth of UK restaurants risk insolvency as they battle tough trading conditions.

That’s according to new figures from accountancy firm Moore Stephens, which warned that rising staff and food costs were putting a strain on operators.

Moore Stephens’ research showed that a total of 14,800 restaurants were faced with the prospect of going under as a result of rising labour costs and an escalation of food prices thanks to a weakened pound.

The pound has decreased in value by over 13% against the euro and 12% against the US dollar since the UK voted in a referendum to leave the European Union last year, Moore Stephens said.

Since the UK imports over half of its food, with 75% of that coming from the EU, restaurants have been faced with a decision to either raise their prices or reduce their profit margins.

The National Living Wage also increased to £7.50 an hour in April, up from £6.70 in 2015, and will rise to at least £9 an hour by 2020.

Moore Stephens also cited business rates as a factor. A recalculation of rates has seen restaurants in London facing a maximum 42% increase in business rates in the first year, according to the Mayor of London’s office.

Byron, Prezzo and Jamie’s Italian have all closed outlets in the past year owing to tough trading conditions. Handmade Burger Co went into administration earlier this year, further highlighting the problems facing the sector.

Insolvency Service data shows that the number of restaurants entering insolvency has increased by 13% in 2016/17 to 1,544 from 1,363 in 2015/16.

Jeremy Willmont, partner at Moore Stephens, said: "The restaurant sector is one of the most competitive for a business to survive in at the best of times and current market conditions make it even tougher."

Restaurants have been particularly impacted by rising costs linked to the weak pound, and will continue to face difficult decisions over how much of their increased costs they try to pass on to consumers.

The increase in the number of insolvencies in the last year is indicative of how difficult the market conditions are now. Finances can be uncertain in the restaurant sector, but this is beyond the norm.

In such a competitive market, restaurants need to be wary of building up losses and debt now in the hope of future profits, as the industry looks to be facing a prolonged period of tough trading conditions.

Source: https://www.thecaterer.com/articles/513839/a-fifth-of-uk-restaurants-at-risk-of-going-insolvent