Restaurant insolvencies jumped in 2011

13 February 2012 by
Restaurant insolvencies jumped in 2011

Restaurant insolvencies jumped by nearly a third in the last quarter of 2011, with nearly 200 companies going bust, research has found.

The number of restaurants going out of business during the last three months of 2001 went up by 31% to 194, compared with 148 the year before, according to research by Wilkins Kennedy.

It is the highest number of insolvencies in the restaurant sector in any quarter since the start of 2009.

A total of 684 restaurant groups became insolvent in 2011, representing an increase of 19% from 576 in 2010.

Wilkins Kennedy said the rise in the insolvencies was due to consumers cutting their spend on eating out, while restaurants have been unable to pass on the increase in VAT and minimum wage as well as rising food costs to their customers.

Anthony Cork, partner at the firm, said: "When income is falling businesses can normally bail themselves out by cost cutting - but restaurants have a very high percentage of their costs fixed by the property leases that they have to sign with their landlords.

"Under the terms of most UK restaurant leases, rents can only ever go up - even if the real rental value of that restaurant has plunged. That means that falling turnover can quickly plunge a restaurant into loss."

Cork added that banks and other stakeholders were forced to pull the plug on many struggling restaurants in the run up to Christmas.

"If a restaurant can't trade profitably in the run up to Christmas, then banks and other stakeholders might think it best to cut their losses sooner rather than to wait until January - and incur more losses. Also, some restaurants might have shut down simply because the owner decides to throw in the towel."

Hospitality administrations climb by 19% in 2011 >>

Hospitality and leisure insolvencies jump 30% before Christmas 2011 >>

By Kerstin Kühn

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