The drop means that pre-tax profits at the UK’s top 100 restaurant groups have fallen 89% from £345m since the first quarter of 2017.
The cost of closing struggling sites has impacted on the profits of restaurant groups over the past two years. Household name groups including Gaucho, Strada, and Prezzo have all shut a number of outlets in recent months. Business restructuring, such as closing restaurants, can be expensive even if it delivers longer-term cost savings. The short-term cost of terminating employee contracts and exiting tenancy agreements early can be substantial.
The fall in profits also highlights the ongoing challenges faced by the casual dining sector, including higher business rates, a rising minimum wage and increasing utility costs. Of the UK’s top 100 restaurant groups, 37 are now loss-making.
Peter Kubik, insolvency partner in UHY Hacker’s London office, said: “The downward spiral in profits of restaurant groups reflects the severe difficulties that continue to impact the sector. Despite the long-term benefits, closing down restaurants is often hugely expensive in the short-term.
“For some struggling restaurant groups that means things will get worse before they get better. However, relative success stories such as Wagamama, which opened seven new UK restaurants this year, show that consumer demand for casual dining is still present. Similarly, ethically-sourced fast food chain Leon is expanding into Europe. The restaurants that are doing better are those who are innovating by offering their customers something more unique.”