One in three of the UK’s top 100 restaurant groups are not making a profit, according to new research into the struggling casual dining sector.
Italian chain Carluccio’s has joined a lengthening list of chains losing the battle against higher costs and increased competition.
The deli to dining brand has called in accountants KPMG to advise on possible strategies.
A boom in casual dining a few years ago, has given way to dog-eat-dog competition as the now crowded sector faces higher costs and faltering consumer appetites.
“There is little respite on the horizon” according to Peter Kubik, partner in the London office of UHY Hacker Young which conducted the research.
UHY Hacker Young says last year 20 of the top 100 restaurant groups were loss-making. This year it is 35.
Which chains are struggling?
Carluccio’s and KPMG are tight-lipped over exactly what options are under discussion.
But it’s another sign that the old certainty – you can always make dough from selling pizza – no longer holds true.
Other Italian-style eateries are already facing the music: Prezzo is closing 94 outlets, Jamie’s Italian is shutting 12 branches and Strada 11.
With so many Italians on the High Street from Pizza Express and Zizzi to small independents, this part of the market is saturated, says Stefan Chomka, editor of Restaurant magazine. And the same goes for mid-market burger chains.
“Every town pretty much has a decent place to get a burger whereas ten years ago they didn’t and so they’ve experienced some of the fall out from that,” he says. Byron is in the process of restructuring and is likely to close 20 of its 67 branches.
Who is still succeeding?
“Wagamama does pretty well,” says Chomka. “Likewise Nando’s is a fascinating success story.”
Both chains, he says face less direct competition from similar brands.
“[Nando’s] goes up against the KFC’s of this world but its not a KFC. It’s a proper sit down dining experience. It’s great for young people. So it’s doing really well.”
Another that’s bucking the trend he says is Franco Manca. It’s Italian, but it is cheaper than Pizza Express et al and also appeals to a younger crowd.
“It has grown phenomenally in the last three or four years as people have moved from larger chains towards some of the smaller chains,” says Mr Chomka.
Why are times so tough?
There are a number of things says Peter Kubik at UHY Hacker Young that are preventing the numbers adding up for restaurant chains.
The fall in sterling since the referendum vote has pushed up the cost of any imported ingredients whether that’s mozzarella or meat, olives or avocado. And staff pay is going up too.
“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,” says Mr Kubik. “That will be tough for a lot of restaurants to absorb.”
Mr Kubik says “Brexit hanging over consumers like a dark cloud” means people are more reluctant to splash out.
Will Wright, KPMG’s restructuring partner responsible for Byron’s recent deal with its creditors, adds in rising business rates and the burden of debt being born by a lot of the chains – the result of a flurry in merger and acquisition activity that has left some stuck with the wrong sites in the wrong areas.
“As restructuring practice we’ve never been as busy as we have been in last few months in this sector,” he says.