The UK’s top 100 restaurant groups grew their collective debt pile by 19% in the last year, from £1.65bn to £1.96bn, according to new analysis.
Accountancy group UHY Hacker Young says many restaurant chains are still increasing their borrowing in order to acquire and fit out new sites, even as high-profile competitors face insolvency.
The firm said that many restaurant chains can only reach break-even by expanding rapidly to achieve economies of scale, meaning they may have to go through long periods of increasing borrowing to fund the expansion.
UHY Hacker Young said that the borrowing of the UK’s top 100 restaurant groups now amounts to 35% of their £5.6bn annual turnover, but added that while this level is not yet a “great concern overall”, there are businesses within the sector with much higher levels of leverage.
Partner Martin Jones said: “For the restaurant sector’s debt pile to keep growing shows that some groups are continuing to borrow, invest and grow aggressively. A lot of restaurant businesses do not have the option of easing off on expansion plans as the sector struggles – they simply have to grow quickly to reach profitability.”
He added: “Significant expansion for a restaurant group is a very expensive undertaking – rent deposits and fit-out costs for a group of new sites often require a substantial increase in borrowing. If new sites don’t turn out to be profitable, restaurant groups can very quickly find themselves facing a CVA or closures.
“The margins in the restaurant business are so thin that just one or two underperforming sites can send the whole chain into the red.”