Struggling UK Restaurants Have a Lot on Their Plates

Recent Insolvency Service reports show that the UK restaurant sector is encountering insolvencies at a rate of 46% more than last year. A slowdown in customer spending and surges in operating costs over the last 12 months have dealt the heaviest blows to the industry.

A variety of economic headwinds are making it more difficult than ever for eateries to keep their doors open. The current economic climate, alongside the rising energy costs attributed to sanctions on Russian businesses, have meant that unavoidable costs such as rent, heating, and lighting have increased to business-crippling levels.

Without a doubt though, one of the main drivers for the rise in restaurant insolvencies is the knock-on effect of customers staying at home. The public are feeling the same pinch as businesses are, and are cutting back on luxury purchases accordingly. Indeed, research published in October by Zonal and CGA by NIQ showed that the number of ‘no-shows’ restaurants see has doubled since last year. Their findings found that one in eight restaurant bookings never shows up, costing the UK’s hospitality industry around 17.5bn in lost revenue.

In their analysis of The Insolvency Service’s report, auditing business, Mazars, had sobering news for those in the hospitality sector. Their associate director, Paul Maloney, predicts that “restaurant insolvencies will continue until interest rates and inflation both come down substantially”, adding that many restaurants are already “struggling to keep their heads above water”.

Uncertainty on business rates

The Insolvency Service’s figures look even starker once observers consider the upcoming rise in business rates for those in the hospitality sector. Similar to the limping pub industry, restaurants are fearful of what any extra costs could do to the many eateries already barely hanging on. Chancellor Jeremy Hunt announced a 75% reduction in business rates in autumn 2022, but that financial crutch is due to end on 31 March 2024.

Several high-profile restaurant owners have rallied together to call for the government to extend this reduction in light of the current climate. Greene King, Travelodge, Burger King, Fuller’s Brewery, Marriott International, and supermodel-turned-publican, Jodie Kidd have all signed a letter which warns that the industry could find itself having to pay an extra £1bn in bills if the chancellor doesn’t take action. One of the signatories, celebrity chef and restaurant owner, Tom Kerridge, explained that “with rising costs and ongoing challenges time is running out, and without further support from government they will shut their doors”.

Forbes Burton Managing Director, Rick Smith, observed that “the whole restaurant sector will be eagerly awaiting the chancellor’s budget announcement later this month. With so many restaurants hitting the wall already, anything less than a freeze on business rates could see a further surge in redundancies around the corner”.

He added that “the cost-of-living crisis has hit almost everybody across the board. Unfortunately though, the first businesses to suffer in economic downturns are those that provide luxury, leisure, and non-essential services. Even if the business rate reduction is extended, we’ll likely see a steady continuation of restaurant insolvencies until socio-economic conditions stabilise”.

Do you have a restaurant that needs help?

If you own a restaurant or other business in the hospitality sector that’s finding things difficult, it’s a good idea to get in touch with us before the situation becomes unmanageable. We’ve helped countless companies to navigate difficult financial situations with our years of experience in business recovery.

If you need to get some advice on what you can do to get your finances back on track, give one of our expert advisors a call. We offer free, no-obligation advice for any type of business. Simply call us on 0800 975 0380 or email [email protected]