In recent weeks, several high street restaurants have either undergone or are in the process of restructuring to manage their growing debts to creditors. This restructuring of their debt and creditors is in the hope of enduring the inevitable contraction of an over populated and highly competitive casual dining market. Recent research into the UK’s casual dining market indicates one in three of the UK’s top 100 restaurant groups are not making a profit.
Companies such as Jamie Oliver’s Jamie’s Italian, is closing 12 out of its 37 restaurants, Byron (burger chain) are shutting 20, Strada approximately a third of its 26 sites leaving it 16 in which it will invest and re-focus. Prezzo and Carluccio’s are also in talks with restructuring companies in a bid to find ways to continue trading out of their current situation, with company voluntary arrangements (CVA’s) being considered as route to survival. A CVA requires creditors to agree to forgo some of what they are owed in a bid to prevent the company going fully in to administration / liquidation and recouping some of their debt under the new structure. This predominantly relates to landlords where business rents have been inflating over a number of years due to location battles for key high street positions amongst other reasons.
So what are some of the ingredients?
Industry experts and commentators have highlighted a number of key ingredients which are leading to the challenging environment faced by some of our best known casual dining outlets.
- Above inflation rises in the minimum and working wages, with an expected 4.4% rise to come into play in April
- Apprenticeship Levy and increased Employer’s Pension Contribution all squeeze incredibly tight margins
- Exuberant business rate hikes due in March / April
- Significant increases in ingredient costs and imported food due to the devaluation of the pound following the EU referendum and prolonged uncertainty over Brexit trade taxes and regulations
- Rapid expansion of chains due to cheap debt and an influx of privet equity money, fuelling competition in a crowded market space
- Changing dining patterns, M&S Dine in for Two for £10, Deliveroo and Just Eat are increasingly steeling the food out of the restaurants mouths as more people look to dine in as disposable incomes fall. The younger generation are also demanding an “Instagramable” cool experience whilst dining
What is the outlook?
The casual dining market is attracting the attention of restructuring companies such as KPMG, Deloitte and EY, with Will Wright, KPMG’s restructuring partner responsible for Byrons’s recent deal with creditors, commenting they have ‘never been as busy as we have been in the last few months in this sector’.
The knock on effect of a contracting market inevitably raises questions for suppliers who have grown to meet the demands of the boom having to find new markets for a potential glut in produce. This will ultimately mean they are more exposed to the impact of these failures making them more vulnerable.
Credit insurers maintain a close eye on the market situation, providing suppliers and companies with credit insurance and company information to enable them to strategically manage their debt should further chains loose the battle on the high street preventing them becoming another supply chain statistic.
Deloittes’s Sarah Humphreys, lead partner for casual dining, see’s further losses in 2018, but thinks reduced margins, a consolidated market place and a focus on providing fresh and better dining experience will see the survivors prosper once again.