The number of restaurant businesses going bust jumped by 31% to 194 in the last quarter of 2011, up from 148 in the last quarter of 2010, according to research by Wilkins Kennedy.
This is the highest number of insolvencies in the restaurant sector in any quarter since Q1 2009, the beginning of the last recession.
A total of 684 restaurant groups became insolvent over the whole year of 2011, an increase of 19% from 576 in 2010.
Wilkins Kennedy says that the renewed economic downturn has led to consumers cutting their discretionary spending on eating out.
Restaurants have also been unable to pass on the recent increase in VAT, the latest increase in minimum wages (October 2011) and rising food costs to their customers.
Anthony Cork, partner at Wilkins Kennedy, said: “It is the proverbial 'perfect storm' but the sheer number of restaurant groups that have been sunk by it is still surprising.
“When income is falling businesses can normally bail themselves out by cost cutting - but restaurants have a very high percentage of their costs fixed by the property leases that they have to sign with their landlords.”
“Under the terms of most UK restaurant leases, rents can only ever go up – even if the real rental value of that restaurant has plunged. That means that falling turnover can quickly plunge a restaurant into loss.”
Wilkins Kennedy says that banks and other stakeholders were forced to pull the plug on many struggling restaurants in the run up to Christmas.
Anthony Cork says: “If a restaurant can’t trade profitably in the run up to Christmas, then banks and other stakeholders might think it best to cut their losses sooner rather than to wait until January - and incur more losses. Also, some restaurants might have shut down simply because the owner decides to throw in the towel.”
“Sales to corporate clients, which are traditionally high during the festive season, were cut last year with a lot of public sector and financial service businesses undergoing a display of austerity. Entertainment budgets are still well below their pre-recession levels and are likely to remain so for some time.”
According to Wilkins Kennedy, in addition to food prices, the rise in alcohol duty announced in April 2011’s budget has contributed to the erosion of restaurants’ profit margins.
Alcohol duty rates rose 2% above the Retail Price Index in March 2011, adding 4p to the price of a pint of beer, 15p to the price of a bottle of wine and 54p to the price of a bottle of spirits.
Source: Wilkins Kennedy
- If you enjoyed this article, you may also like this: Fast food accounts for half of meals eaten out, says data
- Dairy Innovation Awards 2013 winners & finalists
- Garlic & Herb Popcorn from The Garlic Farm
- Dust Cutter Lemonade in Ball Alumi-Tek bottle