Analysis of figures from the Insolvency Service shows that 1,123 restaurant companies have become insolvent so far this year. This compares to 833 in the first nine months of 2017 and 1,075 in the whole of last year.
Further analysis from accountancy firm Price Bailey shows insolvency rates within the sector have risen by 35% year on year. Despite being only three quarters through the year, 2018 has already had more cases of insolvency in the sector than the entirety of 2017.
The number of insolvencies in the sector has trended upward since 2010 and fallen year on year only twice – in 2013 and 2015. Since 2015, the rate has consistently risen and is expected to exceed 1,500 for the first time by the end of this year.
The firm puts the blame on market saturation, rising costs and changing consumer spending habits. Paul Pittman, Partner at Price Bailey, said: “The challenging trading conditions facing the restaurant sector continue to claim ever greater numbers of casualties. 2018 is already the toughest year for the sector since the financial crisis with a record number of restaurant groups calling in administrators.”
“The upper end of the sector in London is facing less pressure than the mid-range casual dining market. There was a huge private equity fuelled expansion in the mid-market, which led to over-saturation, leaving too many restaurants competing for customers. With margins still being squeezed, we will continue to see the less viable businesses and sites in the sector under threat of closure.”
“Restaurants are having to contend with rising costs, such as pressure to implement the National Living Wage, and the apprenticeship levy, which shifted some of the costs of training apprentices onto employers. Brexit has also sapped consumer confidence and pushed consumers towards the food delivery market, with brands such as Just East and Deliveroo capitalising.”
“Chain restaurants are particularly vulnerable to changing consumer fads. What was once flavour of the month can quickly go out of fashion. The cost of acquiring leases and outfitting restaurants can run into the millions per site in prime city centre locations. You need a sustainable customer base to absorb that risk.”