Restaurants can't stand the heat

Published: 15/07/2018 By Ryan Russell

As you will likely have seen in the media, a number of high profile businesses in the food and retail sectors have entered into, or are considering, some form of Insolvency procedure or restructuring. Prezzo, Jamie’s Italian and Cote are just some of the high street restaurants which have had to close stores, with some turning to a Company Voluntary Arrangement (CVA) in light of the challenging conditions in this sector. A CVA can be an appropriate process to restructure your business and close any loss-making outlets, whilst ensuring the underlying business can continue. The CVA enables the preservation of the business, retains employee jobs and enables a better return to creditors compared to alternative options.

But it’s not just the big boys that are affected. We are seeing increased enquiries from sole site restaurant owners whose business are suffering financially. So what’s going wrong? There isn’t one sole reason the sector is struggling, but rather a combination of numerous factors that is making it difficult for the restaurant trade. Firstly there is the rise of delivery platforms, with apps like Uber Eats, Deliveroo and Just Eat meaning restaurant food is literally at your fingertips. After all, why go out to eat when you can get it delivered to your front door? Whilst restaurants can utilise these delivery services and still achieve sales, the commission charged by these providers squeezes profit margins even more, whilst the businesses also miss out on drinks sales (which usually have a high mark-up) or spontaneous orders (did someone say dessert?).

Another reason is competition. The market is saturated with food outlets and everyone is vying for custom. Whilst this is good news for customers as it prompts special offers and deals to entice people in, restaurants are not selling meals for the standard menu price.
The rising cost of imported produce caused by a falling pound has also hit the profitability of restaurants, whilst business rate rises were introduced in April 2017. Also, in April 2018 the National Minimum Wage increased whilst businesses have found it becoming harder to recruit staff. A large part of the hospitality workforce is made up of EU nationals, and as Brexit looms more and more are heading for pastures new.

All of these factors make restaurant trade particularly difficult at this time but it’s important to note that turpin barker armstrong can assist and advise directors on how best to deal with these issues and, either return a business to profitability, or guide them through all available options and procedures to ensure that the weight is lifted at this challenging time. Call us on 020 8661 7878 for further assistance or information.