UK restaurant chains’ profits plummet 64% in one year as sector’s problems mount

Collective pre-tax profits for largest chains slump to £125m, down from £345m the year before

Several restaurant chains have been forced to restructure or to undertake large-scale closures in recent months (Getty/iStock)

Profits for the UK’s top 100 restaurant groups have plummeted 64 per cent in the past year, new research shows.

The largest chains earned pre-tax profits of £125m between them over the last year, down from £345m the year before, accountancy firm UHY Hacker Young found.

The research comes in the wake of several high-profile examples of restaurant chains being forced to restructure or to undertake large-scale closures.

On Friday, Prezzo announced 94 branches would shut in coming months while the Casual Dining Group, which owns high-street chains Café Rouge and Bella Italia, recently reported an 18 per cent increase in losses to £60m.

UHY said that major causes of the sector’s woes include over-expansion coinciding with soaring costs such as rising business rates, increased supplier and staff costs and poor footfall.

Although the Chancellor has brought forward a planned cut to business rate rises by two years (to 2018), more could be done by the Government to help the sector, in particular smaller restaurants, UHY said.

Recently, a group of major restaurant bosses, including the chief executives of Bill’s and the Casual Dining Group, wrote a letter to the Chancellor asking for “root and branch” reform of business rates.

Peter Kubik, Partner at UHY said the restaurant industry had grown ahead of demand in recent years and is now going through a temporary phase of removing excess capacity.

“Our view is that many of these chains that are running at a loss are sustainable businesses once those excess branches are shed,” he said.

“Trading conditions over the past year in particular have become more difficult for restaurants, particularly with rising inflation and recent dips in high street footfall.

“Above-inflation rises in the National Minimum Wage are very hard to sustain in low margin businesses.

“The rise of Deliveroo has also had a mixed impact on restaurants because it has often deprived them of sales of alcohol and other drinks, which are normally high-margin sales in restaurants.

“The Government is moving in the right direction in reducing business rates, but more can be done. Some commentators say that rates for some businesses could rise by more than £24,000 in the next five years.”