UK’s top restaurant groups see profits fall 44% as costs surge
The decline came despite combined turnover rising to £13.3b from £12.9b.
The UK’s top 100 restaurant groups saw combined profits fall 44% to £204m in the last year, down from £365m, as higher employment costs and operating expenses put pressure on margins.
The figures, from UHY Hacker Young, show that the decline came despite combined turnover rising to £13.3b from £12.9b.
Martin Jones, partner at UHY Hacker Young, said the increase in turnover had not translated into higher profits as operators faced rising National Minimum Wage costs, higher employers’ National Insurance contributions, and, for many businesses, increased business rates.
Food and energy inflation also continued to weigh on margins.
Jones also pointed to volatility in food costs, with olive oil, beef, chocolate, coffee, eggs, and pasta amongst products that have seen price increases outpace broader inflation.
“Many operators are now finding that simply getting more people through the door is no longer enough,” he said. “They have to work much harder to protect already thin margins.”
The pressure on profitability is prompting restaurant groups to change menus, invest in technology, and look for additional revenue streams.
Chicken is appearing more prominently on menus, partly in response to demand for high-protein food but also as operators look for alternatives to beef, which has faced significant inflation.
Mocktails are also gaining ground as restaurants target customers drinking less alcohol whilst selling drinks that can carry relatively strong margins.
Other measures include QR-code menus, automated food preparation and payment systems, paid dish customisation, and a greater focus on smaller dishes that can deliver higher margins.
Value is also becoming more important. Research from Boston Consulting Group identified value for money as the leading customer requirement in fast-food and fast-casual outlets.
Restaurants are also exploring AI-powered procurement to identify lower-cost ingredients.
Restaurant groups are increasingly looking beyond food and drink to drive visits and build customer loyalty, with some developing venues that combine dining with entertainment, events, and other leisure activities.
Loungers, which operates the Lounge and Cosy Club brands, is one example.
Its venues are positioned as community spaces combining elements of cafés, pubs, and restaurants.
Jones said consumers were becoming more selective about how they spend their leisure budgets.
“If people are eating out less often, restaurants have to give them more reasons to come back and spend money,” he said.
The tougher trading environment has also coincided with increased private equity interest in the sector, providing some restaurant groups with funding for expansion and capital investment.
Lion Capital, the private equity investor behind Wagamama, increased its investment in Gordon Ramsay Restaurants to support the group's expansion.
Amongst the top 100 groups, some of the largest turnover increases were recorded by Loungers UK (Cosy Club), The Restaurant Group (Wagamama and Barburrito), Lemon Pepper Holdings, which operates Wingstop UK, and Gordon Ramsay Restaurants (Bread Street Kitchen, Street Pizza, and Street Burger).
