Debt Problems in the Restaurant trade

The UK economy is slowly recovering and showing positive signs of growth but a number of businesses are still feeling the effects of recession.

Insolvencies are rising in a number of sectors as businesses fail including restaurants which leads us to ask – do restaurants have a reason for optimism?

 

Expert opinion on the matter is polarised – the answer seems to be both yes and no.

 

Looking broadly at the numbers the food service industry is growing with an expected rate of 2 to 3% this year alone. 

 

Soon it will be back to pre-recession levels but for small and medium sized restaurants, increasing levels of debt are becoming a problem. 

 

Restaurant insolvencies have risen by 15% in the previous 12 months. While it benefited from increased consumer spending, it was also severely hit by last year’s poor winter weather.

 

Gas and electricity prices for restaurants rose by an average of 6.9% last year while food costs also rose by 4%.

 

More customers are dining out but consumer spending in the area is fairly static. When plotted against growing fixed costs then this becomes an issue and not just for smaller restaurants. 

 

Bella Italia and Cafe Rouge have made the headlines recently because they have entered into Company Voluntary Arrangements (CVAs) with their main creditors to restructure their outstanding debts.

 

There’s no easy or obvious solution in sight. Some industry experts now predict a coming rise in interest rates which will have an immediate effect of reducing the disposable income for customers, impacting on dining options immediately.  

 

Some restaurants will emerge from the recession in a better state than others. Branded restaurants and managed pub chains will most likely continue to expand but it won’t feel like an economic recovery for the rest. 

 

Even those that do understand that the restaurant industry is a fragile one and any that rely heavily on consumer spending habits will have to anticipate and be used to fluctuating circumstances. 

 

We’ve helped many restaurants overcome debt and other business problems to be able to concentrate on what they do best – providing a wonderful experience for their customers. 

 

If you want to know how we can help you dedicate more time to service and less to servicing debt, get in touch for a free initial consultation today.