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Restaurant insolvency reaches record high as more than 1,100 businesses go bust

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Restaurant insolvency reaches record high as more than 1,100 businesses go bust

Restaurant businesses are going bust at record high levels, with 1,123 filing for insolvency in the first three-quarters of 2018.

Analysis from top 30 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.”

He added: “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.”

Pittman added that changes to the industry caused by social media can lead to quick shifts in and out of flavour based on rapidly changing consumer tastes.

He said: “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.”

It comes as UKHospitality and Christie & Co launch a report highlighting the toll government-implemented costs are having on the sector. Controllable costs have risen to an average of 52.5% of turnover – the highest level since the report was first published 12 years ago. Payroll costs have risen 1.5% over the year to 29.4% of turnover, while like-for-like sales have risen by 1.1% below inflation.

UKHospitality chief executive Kate Nicholls said: “The results of this year’s UKHospitality Christie & Co Benchmarking Report make for sobering reading for eating and drinking-out businesses. Costs continue to rise for pubs, bars, restaurants and nightclubs.

“At a time of political and economic uncertainty, the government must provide support to help address spiralling costs that threaten the future of the hospitality industry in the UK. Additionally, 40% of businesses surveyed reported a hike in their business rates and 20% have reported that they have had to cut staff numbers to address cost rises. The government must immediately commit to reform of a broken business rates system.”

Last week Chancellor Philip Hammond announced a business rates cut of one-third for sites with a rateable value of £51,000 or less, in a budget expected to save hospitality businesses £750m.

The business rates cut, which the Chancellor said would see savings of up to £8,000 for 90% of independent pubs, shops, restaurants and cafés, will remain in force until the 2021 business rates revaluation.

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