Restaurant insolvencies increase

The number of restaurant companies becoming insolvent has risen by nearly half in the past year according to research by Mazars.

The analysis showed that the the total number of restaurants which closed had  increased from 1,517 in 2021/22 to 2,214 in 2022/23, an increase of 46%. 

Mazars says that restaurant groups have relied on debt finance to fund expansion and renovation. The sharp increase in interest rates over the last two years has seen some forced into insolvency by their debt burden.

Restaurants have also had to contend with weak consumer spending and a rise in the costs of ingredients. This has forced many to raise prices to the point of unaffordability for some customers. Added to this, 44% of the public are cutting discretionary spending in the run up to Christmas, with dining out the most frequently cited cutback. 

In April this year restaurants were hit with a considerable 9.7% rise in the national minimum wage from £9.50 to £10.42, its largest ever cash increase. This is equivalent to an additional £1,600 per year before National Insurance for someone working full-time.

Paul Maloney, Associate Director at Mazars, said the insolvencies were largely down to the rising costs of servicing debt and the squeeze on consumer spending caused by rate rises and inflation. He also said there is a continued shortage of staff for the hospitality sector, which has also driven up wages.

“A lot of restaurants are beset with challenges well outside their control – many are struggling to keep their heads above water, The combined pressures of rising costs of staff, debt servicing and ingredients is shrinking margins and driving many businesses to breaking point. Restaurant insolvencies will continue until interest rates and inflation both come down substantially.”