Britain's casual dining sector hit by restructuring wave: KPMG
It will suffer closures in the coming months, with a quarter of restaurants experiencing severe financial stress.
The crisis ripping through the sector will continue long into 2018, according to KPMG, with company voluntary arrangements (CVA) proving a popular choice on the restructuring menu. High street chains Byron burger, Jamie's Italian and Prezzo have all embarked on CVAs since the start of the year, allowing them to close loss-making stores and secure rent discounts.
Figures from KPMG found that 25% of companies in the casual dining space had booked an operating loss at least once over the last two quarters.
It comes as restaurants struggle to stomach the cocktail of pressures engulfing the industry, as margins are gobbled up by rising business rates, the National Living Wage, the Apprenticeship Levy, and persistently high inflation.
KPMG partner Will Wright said cash-squeezed consumers are overloaded with options of where to eat and tend to choose "alternative 'experiential' dining experiences" over "familiar fare".
"We certainly anticipate this wave of restructuring to continue over the months ahead, as stakeholders take measures to 'right size' their estates to a more profitable core, with the ultimate aim of safeguarding their long-term futures," he added.
KPMG analysed 125 casual dining companies with revenues of £15 million or more. It found that 78% of industry players had seen their net debt swell over the past two quarters. Of those that added to their debt pile, a fifth saw a decrease in their cash balance. Margins were also coming under pressure, with 69% of firms working with operating margins of under 5%.
Wright added, "With profit margins being squeezed and debt burdens increasing, and all economic indicators pointing to signs that things aren't going to improve any time soon, restaurant businesses are looking for cost cutting measures through operational and financial restructuring, including negotiations with lessors and in some cases, considering the need for a CVA."
Despite the bitter trading conditions, Wright was sanguine on the outlook for casual because eating out has become "so firmly entrenched in our day-to-day lives".
He added, "I firmly believe that the long-term future of casual dining remains bright, particularly for those operators who are able to stay relevant and who place the customer experience at the heart of their business."
