Third of top UK restaurant chains failing as Carluccio's joins the pile

Over a third of the UK’s top 100 restaurant groups are failing to make a profit, a study into the sector has found.

According to accountancy group UHY Hacker Young, 35 of the restaurant groups are now loss-making, up 75% on last year, as increasing costs linked to the rising minimum wage and market saturation have created a difficult trading environment.

Casual dining chain Carluccio’s joined the growing list of floundering eateries, which now includes Prezzo, Jamie’s Italian and Byron Hamburgers, and is working with KPMG to resolve its financial woes.

Peter Kubik from Hacker Young said: “Consumers only have a finite amount of spending power when it comes to eating out, and the oversaturation of the market means that groups that fall foul of changing trends can very easily fail. The Government has ratcheted up costs with a series of above-inflation rises in the minimum wage, and we are just weeks away from another 4.4% rise in April. That will be tough for a lot of restaurants to absorb.”

“Pressures on the restaurant sector have been building for years, and the last year has pushed a number of major groups to breaking point. With Brexit hanging over consumers like a dark cloud, restaurants can’t expect a bailout from a surge in discretionary spending,” said Kubik.

The string of high-profile closures so far in 2018 has dented bolster confidence in the sector, but recent figures from the Coffer Peach survey by CGA suggested that overall the restaurant market had stabilised. Restaurant groups across the country collectively recorded flat trading in January, up 1.0% in London and down 0.3% outside the M25.

"People are continuing to go out to eat and drink," said Phil Tate, chief executive of CGA. "But that doesn't disguise the fact that the market is experiencing increasing cost pressures on a number of fronts and that competition is intense. Consumers have more choice than ever. Brands that may have over extended themselves are now feeling the pain."

High street Italian and burger restaurants are hit the hardest by market saturation, according industry press. “Every town pretty much has a decent place to get a burger whereas ten years ago they didn't and so they've experienced some of the fallout from that,” said Restaurant Magazine editor Stefan Chomka.

The weakened state of the post-Brexit pound also shares some of the blame, with consumers less likely to spend and restaurants being hit with increased costs for imported ingredients such as olives, mozzarella and avocado.