Sharp rise in number of restaurant insolvencies

Blog Insolvency

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New industry figures have revealed that the number of restaurant businesses that have become insolvent has increased by a quarter this year as consumers continue to tighten their belts.

The figures show that there have been 1,219 insolvencies this year compared to 985 in 2017, ranging from standalone restaurants to large investor-backed chains.

During 2018, a number of large restaurant chains were forced to strike rescue deals, known as company voluntary arrangements (CVAs) with their creditors as they faced unsustainable debts.

Gourmet Burger Kitchen has announced plans to close 17 of their sites in a bid to stay afloat, while Carluccio’s have shut 34 outlets, and Italian restaurant group Prezzo have announced they will close around a third of their outlets including all 33 Chimichanga outlets.

On top of that, there have also been financial issues for Argentine restaurant group Gaucho who were saved at the last minute whilst on the verge of administration.

Experts believe the jump in insolvencies reflects the restaurant industry’s issues with overcapacity, with an influx of private equity investment into restaurant businesses leading to some chains opening too many sites that are failing to break even.

Restaurant critic Jay Rayner said that many restaurants, particularly mid-market chains operated on “extremely tight profit margins”.

He said: “They might be worth a lot but their margins are so tight that they are subject to real pain if there are sudden changes in the marketplace.

“While an independent, standalone restaurant might be able to cut its costs and struggle on, investor-backed businesses had to cut their losses fast.”

Mr Rayner added: “I don’t believe in crystal-ball gazing, but I think the last few months of the year will have been good for restaurants, however, in January many are going to find themselves staring down the barrel of Brexit.

“I think we could see a lot more businesses go to the wall and a lot of jobs lost.”

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