Investors: up to 40% of restaurants might not survive coronavirus

As many as 40% of UK restaurants might not survive the coronavirus crisis, according to the industry’s top investors, but opportunities lie ahead for the most innovative operators.

Speaking to The Caterer, White Rabbit Fund chief executive Chris Miller said: “There will be a massive shakeout of those just surviving. There are not huge margins in hospitality and a lot can’t survive a 10% drop in turnover. My estimate is 60% will reopen, maybe more if government support or a vaccine happens rapidly.”

Luke Johnson, chairman of Risk Capital Partners, said that the lockdown could be the “death knell for turnarounds” but for high-quality businesses that are doing the basics well, have a good customer base and sensible finances “this could just be a temporary disaster based on an interruption”.

Ego restaurants chief executive James Horler said high-volume operators will be facing the biggest headaches implementing social distancing restrictions when they reopen.

“If you’ve got to operate the floor, bar and kitchen and need management and cleaners, but with only 40% of revenue, you can’t cut payroll by 60%. It would be a real challenge to be profitable,” he said.

“The winners are likely to be smaller operations. I’m chairman of Notes coffee, and because that market is a quick in and out, with typically 20 to 40 covers, it could come back strongly.”

Trispan operating partner Robin Rowland said operators will need to find another 10%-20% of income on top of their existing model to survive and will need to be creative, giving the example of the Rosa’s Thai business he chairs.

“Two ways of doing this are food deliveries and virtual brands,” he said. “Rosa’s Thai kept 11 out of 19 restaurants open doing deliveries and they’re doing very strong business. Rosa’s Thai in Ealing also has a virtual Korean chicken brand. You order it on Deliveroo and wouldn‘t know it’s come from Rosa’s."

Both Miller and Johnson said conversations are taking place around new investment opportunities.

Miller said: “We are still looking at potential deals. There will be cheaper properties, some super premium sites available and more labour available as the sad truth is a lot of people will still be made redundant when they come off furlough.

“We’ve already seen phenomenal innovation, especially in London. These are the brands I’m interested in. I’m really keeping my eyes open for who’s adapting to the new world and finding brands that have flexibility in their revenue streams."

Read the full feature in next week’s issue of The Caterer.