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Tough Times for the Restaurant Sector

Market conditions aren’t looking positive for the restaurant sector as doors continue shutting from all directions throughout the UK.

As a wave of closures sweeps over the UK, large chains such as Byron Burger and Jamie Oliver’s restaurant group have found themselves implementing rescue plans and closing down restaurants. Accountancy firm Moore Stephan’s reported 1,219 insolvencies, including large chains and standalone restaurants for the end of 2018, 985 up from 2017.

More recently, Boparan Restaurant group has announced a proposal to enter a company voluntary arrangement (CVA), closing 27 of their Giraffe and Ed’s Easy Diner restaurants. The CVA looks to relieve them of their unprofitable sites and hopes to create a better financial standing.

So with large chain brands such as Carluccios, Prezzo and Gourmet Burger Kitchen closing over 140 of their restaurant’s heads are turning to take a look as to why the sector is experiencing such a collapse.

One reason Moore Stephens highlighted for this struggle is the sectors overcapacity at a period of time where people are limiting how often they eat out. The uncertainty of Brexit has people prioritising essentials and putting a squeeze on spending on non-essential items.

Along with a previous influx of private equity investment that caused a rapid increase in restaurant chain sites meant that this overpopulation of establishments are now struggling to break even.

Paired with this dip in consumer expenditure, restaurants are facing rising overheads in forms of increased wages and ingredient costs. Jamie Oliver’s restaurants, for example, source their ingredients from Italy, a process that has become increasingly expensive with the effects of Brexit.

Additionally, in 2018 the living wage increased and will continue to increase by 4.9% in April this year. If restaurants are to recruit and retain staff they need to keep this in mind whilst understanding the effect this increase will have on their already slim profit margins.

So how do these closures affect the UK high streets? With the developments of home delivery apps on the rise as well as town centres losing their shops at a rapid rate and no one stepping in to fill their spaces, high streets are looking to see more empty stores left behind.

Jeremy Willmott, Head of restructuring and insolvency said: “Restaurants have always been prone to high failure rates but vacant restaurants used to be rapidly replaced by a new contender. For now, that process seemed to have stalled and many sites are empty.”

The rise in empty stores inevitably has a knock-on effect on the sectors labour market. 2018 saw 10,000 restaurant workers lose their jobs and with the recent closures at the start of the year, it looks like 2019 will see another increase as more restaurants shut their doors. This means that for those working in the restaurant sector the number of vacancies may well decline, however, given the acute shortage of staff across the industry it is unclear what affects this will have for hospitality professionals.

So with a rocky start to 2019, predicted further closures and possible difficulties in the future, the UK restaurant sector may need to hold tight budgets until non-essential expenditure begins to increase and costs start to fall.

In the meantime here at Berkeley Scott, we are here to help those who have found themselves out of work or are looking for their next role in this sector. With over thirty years’ of experience we have the industry connections to get the right people into the right places. Alternatively for clients, we also offer cost effective recruitment, so in times of low budgets, you can rely on us to provide you the best service and the best people to get the job done.