Accountants Moore Stephens have warned that Brexit is the main culprit behind the current struggles of the restaurant trade, which have seen restaurants big and small struggle to cope with rising costs and falling custom.
Increased Costs Put Restaurants under Pressure
Research by the accountancy firm has revealed that 5570 restaurant companies have a 30% chance of facing insolvency in the next three years. While the increases in the National Minimum Wage
and Living Wage have played their part in increasing the costs of restaurant owners, Moore and Stephens claim that most of the blame lies at the door of the Brexit threat and the affect this has had on the economy.
The company says that the fall in the value of sterling after the referendum has increased the cost of importing food. Currently, Government figures estimate that the UK imports 48% of its food, with 29% coming from the EU.
Rising costs are also impacting on disposable income. Proportionally, consumers also have less disposable income, the study pointed out, with the UK average gross disposable household income increasing just 0.5%, from £17,872 to £17,965, over the last year.
However, while The Restaurant Group admits it’s had a “challenging trading period”, and has opted to close 33 UK restaurants – including 14 Frankie & Benny’s branches, 11 Chiquito restaurants, the Wembley branch of Coast to Coast and its flagship Garfunkel’s in the Strand – it has stated that this is part of a strategic plan, with ongoing plans to open restaurants at many new sites. Debbie Hewitt admits that the company can’t afford to pass on the burden of their increased costs to their customers.
Smaller Restaurants are Hit Hardest
Mike Finch, restructuring partner at Moore Stephens, said: “It’s been a tough year for many restaurants in the face of rising costs and fierce competition.
“It is unrealistic to expect UK restaurant groups to avoid the impact of the fall in the pound by substituting for UK produce – they are going to face a big hit. Restaurants have to make tough decisions as to how much they try to pass on to consumers; too much and they risk losing business, too little and they lose margin.
“Fluctuations in the foreign exchange markets have hit small and medium sized restaurant businesses particularly hard as they have tighter financial constraints and are less likely to negotiate long term supply contracts. All this comes at a time when many consumers are likely to be very price conscious.
“The high number of potential insolvencies over the next year shows just how fragile finances can be in this sector and demonstrates the importance of careful financial management.
“There may be further challenges to come as the UK’s trading agreements with Europe remain uncertain. Many in the restaurant industry would consider the idea of additional import tariffs on foodstuffs with horror.”