Why are the UK’s restaurant chains struggling?

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Why are the UK’s restaurant chains struggling?

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By Mark Richards

The UK restaurant trade is under threat. Profits are down, restaurants are closing and people are choosing to stay at home with a takeaway. Why has this happened – and what threat does it pose to the UK economy?

Two weeks ago we went to see Darkest Hour; it was excellent, and if Gary Oldman does not win the Oscar for his role as Churchill I will be surprised and disappointed. I absolutely recommend the film to you.

What I absolutely do not recommend is going to the restaurant we went to afterwards. Nothing special: just a burger for my wife, meatballs and spaghetti for me. We were in Frankie and Benny’s. It was dreadful. My wife sent her chips back (more or less raw): my meatballs were completely tasteless.

So I was not hugely surprised to see a BBC report a few days later saying that the restaurant trade in the UK was struggling and that shares in the Restaurant Group – owners of Frankie and Benny’s and Garfunkel’s – had lost two-thirds of their value since the beginning of 2015.

Why are UK restaurant chains struggling? Is it simply – as many of them claim – the impact of Brexit? Or does it go deeper than that? Is the British public staying in rather than eating out – and happy to eat a takeaway as it watches yet another cooking programme on TV?

Business Factors

One of the reasons could be simple business factors: many restaurants are locked into upwards-only rent reviews, and they are now faced with having to pay the increased national minimum wage, which will be £7.83 an hour from April. Factor in other expenses like the apprenticeship levy and the simple cost of doing business is putting the restaurant trade under pressure.

Or is it all Brexit’s fault?

In January of this year, Jamie Oliver’s restaurant group said that 12 of its 37 outlets would close, with the chain reportedly having lost £10m. The chain said that the rising price of ingredients was behind much of its troubles with Jamie’s Italian – surprise, surprise – having to buy many of its ingredients from Italy, with the fall in the value of the pound since Brexit having pushed up the cost of ingredients.

In fairness to the Brexiteers, the pound (in round terms) fell from $1.50 to $1.30 after the Brexit vote, before recovering to around $1.40. Even allowing for the maximum 13% fall, you would suspect that the chain had rather greater problems than more expensive sun-dried tomatoes.

There are just too many restaurants…

And now we may be getting somewhere. This is the view of the dispassionate bean counters. Roger Tejwani, head of the consumer sector at stockbrokers Finncap, says there are just too many restaurants. Customers have so much choice that there is little loyalty and increasing use of social media allows customers to be aware of a much wider choice of food.

In fact, Mr Tejwani takes the case for social media even further. “Restaurants are competing against each other and other forms of entertainment,” he says, adding that restaurants need to start taking account of customer technology. Younger customers want to be “seen in a cool place” which means that restaurants “have to be Instagrammable.”

Instagrammable? Clearly, I am a desperate old fuddy-duddy. Rather than the restaurant being ‘Instagrammable’, I prefer it if the chef can cook. But yes, I admit it. I take photos of my food…

Why are the UK's restaurant chains struggling?

We want to eat more healthily

Tastes are definitely changing. Sarah Humphreys, the lead partner for casual dining at Deloittes, says that customers now want to know about sustainable food sourcing and are more concerned with healthy eating. Too true: when I go to the butchers he has a blackboard displaying the local farms his meat has come from. I have yet to see a restaurant do the same.

The wider UK economy

The restaurant industry plays a significant part in the UK economy: consumer spending on restaurants and cafes was £74bn in 2016 and – more importantly – the sector is an important employer. According to the most recent figures I can find, there were 914,000 people employed in the restaurant sector in 2015 – up from 654,000 ten years previously. Worryingly, this number had dropped to 817,000 by 2016 and a significant fall in the number of restaurants would undoubtedly lead to higher unemployment across the UK.

But with wages continuing to lag behind inflation, people cannot afford to eat out as much as they did and – as Roger Tejwani pointed out – there are simply too many restaurants competing for too few customers. And then there is the elephant in the room, or – more accurately – the delivery driver in the room…

The rise and rise of Just Eat

At the beginning of November last year we wrote an article entitled ‘Will Just Eat Gobble up the Restaurant Trade?’ Here’s part of that article:

Just Eat continues to go from strength to strength, with orders jumping by almost 30% in the third quarter of the year, with revenue for the period rising from £94m to £138m – up 44%, which would suggest that we are now spending more on our takeaways. Just Eat are now forecasting revenues of £500-515m for the full year, significantly up on last year.

Nothing has changed since November. Incredibly, recent rises in the share price of Just Eat mean that it is worth more – at around £5.5bn – than both Sainsbury’s and Marks & Spencer. That is an incredible statement: M&S has been around forever. It has branches in nearly every town in the country. It sells a gazillion chickens a year. Not to mention all those socks and pants. But M&S is in the depressed retail sector: it has a serious image problem – and even ‘dine in for two for ten quid’ pales after a while…

Meanwhile, Just Eat and other companies continue to deliver takeaways in ever-increasing numbers. It is an illustration of both the way technology is changing things we thought were set in stone – and of the continuing threat to the restaurant business. It is Valentine’s Day next week:  the day when you traditionally took your beloved out for a romantic meal. This year more and more of us will opt to stay home with Netflix and our favourite delivery app. While the restaurant owners wonder if the next people through the doors will be the receivers…

By | 2018-02-09T10:16:33+00:00 February 9th, 2018|Business, Economy|0 Comments

About the Author:

A previous financial services business owner, Mark is an experienced Journalist Speaker, Speechwriter and Coach. He has written for a number of websites related to the financial sector and won numerous awards. Mark has also published a number of books.

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