Restaurant insolvencies hit highest level in a decade

By Restaurant

- Last updated on GMT

The number of restaurant businesses going bust has leapt 65% to the highest level in more than a decade

Related tags Insolvency Bankruptcy Finance Debt Casual dining

The number of restaurant businesses going bust jumped by 65% in the past 12 months to the highest level in more than a decade, new data has shown.

Some 1,880 British restaurant businesses became insolvent in 2022, up from 1,139 the previous year, according to figures obtained by accountancy firm Price Bailey. An average 5.2 restaurant businesses are going to the wall a day, it says, up from 3.1 per day in 2021, many of which comprise multiple restaurants.

The firm describes the restaurant sector as facing a ‘perfect storm’ of adverse trading conditions, which are proving particularly challenging for the mid-range casual dining market. A range of factors, including the phasing out of measures put in place to support businesses during the pandemic, and the squeeze on incomes due to rising inflation, are piling pressure on the sector, forcing a rising number of well-known chains into insolvency over the past 12 months, it says. These include Byron Burger, which recently entered insolvency for the second time​, closing nine sites with the loss of 200 jobs.

“Restaurants are facing bracing economic headwinds. Soaring inflation is leaving consumers with less money to spend on eating out, which hit restaurants just as government support was being phased out,” says Matt Howard, head of insolvency and recovery at Price Bailey.

“Restaurants are struggling with rising wage and food costs. Many are finding it difficult to pass those costs on to diners who are feeling the squeeze from rising energy and food bills themselves.”

Mid-range market the biggest casualty

The upper end of the sector in London is facing less pressure than the mid-range casual dining market, according to Price Bailey, with many high streets having become over-saturated with chain restaurants competing for a dwindling number of customers.

“With margins still being squeezed we will continue to see the less viable businesses and sites in the sector under threat of closure,” adds Howard.

“Restaurants are capital-intensive businesses. Many are perpetually walking a balance-sheet tightrope and it often only takes a few months of poor takings to send them over the edge. The impact of rail strikes over the key festive trading period is likely to push many city centre restaurants into insolvency in the coming months.”

Price Bailey predicts that the situation is likely to worsen as food inflation remains high and additional interest rate rises place further pressure on a heavily leveraged sector.

“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. Many restaurant businesses are highly geared, making them vulnerable to rising interest rates,” says Howard.

Restaurants are also facing stiffer competition from the food delivery market, with brands such as Just Eat and Deliveroo persuading many would-be diners to eat at home rather than spend more by eating out, says the company, which predicts that home delivery services will take more market share as disposable income is squeezed.

Related topics Trends & Reports Casual Dining

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