A new report by Credit Benchmark has highlighted the pressure of Brexit on Restaurant and Bar businesses. The report says that the UK industry has been suffering under the ‘Brexit Effect’ for some time now, with a downturn observed across both large and smaller businesses around the country.
One of the hardest hit industries has been the UK services sector, with IHS Markit reporting a below-forecast PMI of 50.2 for UK Services in July 2019. A weakened pound has put additional pressure on UK restaurant and bar businesses by making ingredients more expensive and adding to rising staff costs as a result of increased minimum wage rates. Oversupply has also been an issue in recent years, with 4,000 new openings across the UK over the past 4 years, often in areas with insufficient footfall. High profile closures include Jamie’s Italian, Strada, Prezzo, Carluccio’s, Byron Burger and Gourmet Burger Kitchen. At the end of 2018, accounting firm Moore Stephens calculated there were 1,219 insolvencies in 2018, up significantly from a total of 985 in 2017.
Credit Benchmark Consensus data, sourced from 40 pus leading global financial institutions, tracks the credit quality of a group of UK Restaurants & Bars, with 50 constituents ranging from small localised ventures to large well-known chains. Credit quality for the group has steadily deteriorated since December 2015, barring a small respite in Q1 2017. Overall, there has been a 35% drop in credit quality in this time period.
Additionally, the Consensus credit level for the vast majority of companies represented (less that 70%) are in the non-investment grade category of bb, speaking to the decreased confidence lenders are feeling towards the sector in the current economic climate. As Boris Johnson begins to unveil some of his policy plans, but Brexit will remain a moveable feast for the foreseeable future – and UK restaurateurs will continue to feel the heat.