The percentage of restaurant companies which are now making a profit (based on an analysis of the UK’s Top 100 restaurant companies) has doubled in the last year from 35% to 78% according to research by UHY Hacker Young.
Several rounds of dramatic restructurings of those restaurant companies, which have taken place since the start of the Covid pandemic, have been instrumental in returning the UK’s biggest restaurant companies to profitability.
As well as taking more radical action such as closing down loss making branches and cutting staff numbers restaurant companies have also undertaken a range of other cost cutting measures such as such as cutting restaurant opening hours to reduce the cost of utility bills and staff costs. Restaurants have also reduced their menu options to spend less on ingredients and even switched to cheaper food suppliers.
Many of the UK’s Top 100 restaurant groups have also implemented measures to boost revenue. Some UK restaurants have introduced low-cost menu options to attract consumers seeking more value for money options amid the cost-of-living crisis. Restaurants have also accelerated the sourcing of more sustainable food options, including vegan foods, which cater to a more environmentally conscious customer. It is argued that some vegan substitutes for meat or dairy dishes can provide restaurants higher margins.
Given the challenges faced by UK restaurants over the last few years, the majority have done exceptionally well to generate a profit in 2023. However, the sector still faces an exceptional tough trading environment caused by high inflation and the rising cost of debt.
It will be a delicate balancing act to implement cost cutting measures while also providing a service good enough to attract and retain customers. Some restaurant groups are exploring if they can offer more affordable food and drink options to attract customers affected by the cost-of-living crisis. However, this would lower profit margins.
Labour shortages are also a concern for the sector. One in nine UK hospitality jobs were vacant in 2022 and as a result, hospitality companies had to pay workers 9% more last year to attract new staff**.
The increase in profitability may have been partly responsible for a recovery in M&A deals in the hospitality sector in the UK. The number of deals within the UK’s hospitality sector reached a five-year high of 186 in 2022**, after company valuations had fallen sharply during the pandemic.