Why are so many restaurants closing down?
Market saturation and changing spending habits lead to record number of insolvencies
The number of restaurant insolvencies in Britain has reached a record high, with an average of four eating establishments folding a day.
A study by accountants Price Bailey showed there were 1,442 restaurant insolvencies in 2018, up 40% on the year before and double the number in 2010.
Price Bailey said a major reason was that mid-market restaurants had expanded too quickly, with chain restaurants “particularly vulnerable to changing consumer fads”.
“What was once flavour of the month can quickly go out of fashion,” it said.
Restaurant critic Jay Rayner told the BBC that many restaurants, and particularly mid-market chains, operated on “extremely tight profit margins”.
“They might be worth a lot but their margins are so tight that they are subject to real pain if there are sudden changes in the market place,” he said.
Amid calls to do more to shore up the beleaguered high street, Chancellor Philip Hammond announced a business rates cut of one-third for sites with a rateable value of £51,000 or less, in his October Budget that was “expected to save hospitality businesses £750m”, says The Caterer.
However, it came too late for well-known high street names such as burger chain Byron, Argentinian steak restaurant Gaucho and Italian chains Prezzo, Carluccio’s and Jamie’s Italian, which all used Company Voluntary Arrangements (CVAs) last year to restructure their business and keep trading.
In December, a separate report from accountancy firm Moore Stephens blamed the rise on overcapacity at a time when Britons are eating out less.
It also said interest rate rises and Brexit concerns had “put a dent” in consumer spending growth, as operators faced rising overheads such as the minimum wage and ingredients costs.
Both accountancy firms also highlighted changing consumer spending habits, notably the rise in takeaway delivery apps such as Deliveroo and Just Eat, as contributing factors to the rise in restaurants going out of business
Reuters reports “the latest sign of vulnerability in Britain’s consumer economy”, comes after it was revealed that personal insolvencies have also soared to their highest level since 2010.