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The restaurant industry is feeling the heat

 

Posted on 19 April 2018

Anyone who has traded in the restaurant industry will be familiar with the substantial and onerous overheads that need to be met in order to simply operate, and even more so in the current economic climate. The first few months of 2018 have seen high street brands such as Byron Burger, Jamie’s Italian Restaurant and, most recently, Prezzo each being forced to close around a third of their restaurants.

Whilst, on the face of it, this appears to be a drastic step, it is clearly hoped that by restructuring those businesses, and removing those outlets that are a drain on the Company’s cash flow to focus on a more profitable core, these businesses will curb losses and secure longevity.

Whilst there are several confounding variables that appear to be forcing these national restaurant chains to restructure their organisations, and seek alternative strategies to ensure survival, here we consider the main factors:

Brexit

Brexit has seen the value of the pound decrease, an important determinant of the price of imports. Considering much of the UK’s restaurant industry relies on food imported from the EU, this is undoubtedly appears to be affecting the industry on the face of it.

Furthermore, a substantial proportion of workers in Britain’s restaurant industry are EU nationals, and the ongoing uncertainty surrounding Brexit naturally creates a problem for the sector.

Labour costs

National Minimum Wage has increased from £7.50 to £7.83 with effect from 1st April.

Given that a sizable proportion of workers in restaurants are paid the minimum wage, the impact on the wider industry will be significant.

Food inflation

As the cost of produce continues to rise, ingredients get more expensive to source, having a detrimental impact on margins and therefore placing low profit restaurants at risk.

Similarly, a fall in disposable household income, rising rental costs and business rates are also having a negative impact, the consequences of which are reverberating through the industry. 

If you are based in the restaurant sector and are concerned about the issues facing the industry, please do not hesitate to get in touch with one of our Business Recovery and Insolvency experts, who can assist you in guiding you through any uncertainties and consider the many options that are available to you.

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