Pandemic pivoting brings success to some but huge losses prevail

Rick Stein enjoys £1m profit and takeaway and deliveries grow, but large restaurant groups experience collective losses of £673m.

 

Launching meal kit businesses led to a welcome boost during the pandemic for both Rick Stein and Ottolenghi. The launch of a meal kit delivery business helped Rick Stein’s hospitality empire post a pre-tax profit of almost £1m in the first year of the pandemic.

 

The Seafood Restaurant (Padstow), which includes the Stein family’s restaurants, hotels, retail outlets, cookery school and online shop, reported a profit of £999,000 with turnover of £14.9m in the year to 3 January 2021. This was up from a pre-pandemic profit of £513,000 in 2019 with turnover of £17.5m.

 

The company set up a major e-commerce arm after its restaurants were forced to close in 2020, which now includes meal kits, an online fishmongers and giftware.

 

The Stein’s at Home menu ranges from £35 for an afternoon tea or breakfast box to a £149 celebration box with Veuve Clicquot Champagne and three-course meal with lobster Thermidor.

 

Stein’s group permanently shut its restaurant in Porthleven, Cornwall, in 2020, but its Marlborough site was saved from closure after the landlord agreed a rent reduction.

 

It is one of the largest private sector employers in Cornwall, though the average number of employees dropped from 386 in 2019 to 367 in 2020 and wage costs dropped from £7.1m to £6.2m.

 

On 15 April 2021 the group were awarded £969,000 in settlement of dispute, but as there was no expectation the funds would be received as at 3 January 2021 it was not recognised in the balance sheet. Ottolenghi expands online

 

Meanwhile, Ottolenghi group has said diversifying its online product range meant it was operating at a higher earnings margin than before the pandemic.

 

During the year ended 31 March 2021 the company expanded its online shop with dinner boxes, meal kits and a tableware licensing deal. Three of its six trading sites were closed for 70% of the financial year, meaning turnover dropped by almost £13m to £7.8m, while earnings before interest, taxes, depreciation and amortisation (EBITDA) fell £1.3m to £185,360.

 

Ottolenghi group said: “Presenting a positive EBITDA after this pandemic-hit year is a testament to the ability of the business to weather an exceedingly challenging trading environment.” In May 2021 the company moved its production unit and online warehouse to a larger site in Holloway, north London, which has allowed it to support further expansion of its delis and retail product range. The company took out a £3.7m Coronavirus Business Interruption Loan with OakNorth bank during the year, of which it has since repaid £1.5m.

 

In July 2021 Ottolenghi opened a Marylebone deli, which it said was trading well. Its Motcomb Street site closed in December 2021, but a new deli will launch around the corner on Pavilion Road this month. During the year, Ottolenghi disposed of its 50% shareholding in the operating of Scully’s in St James’s, London, which is run by former Nopi head chef Ramael Scully.

 

Breakfast Club eyes expansion

 

The Breakfast Club began a delivery service 39 days after lockdown in March 2020 which it said remained an “integral part” of the business, with a standalone delivery kitchen in Chiswick. The restaurant chain continues to focus on expansion despite seeing turnover halve during the year ended 31 March 2021.

 

Catsteps Cafes, which operates the Breakfast Club brand, posted a pre-tax loss of £1.4m for the period with turnover dropping 51% to £7.6m.

 

Group EBITDA dropped from £787,000 in the prior year to a loss of £606,000. At an operating level, restaurant EBITDA fell from £2.2m to £218,000 during the year.

 

Breakfast Club runs 13 restaurants in London, Brighton and Oxford and launched its most recent venue, in the former Cafe Rouge site Chelmsford, in November 2021.

 

Breakfast Club said its management team were “looking at expanding further when the opportunity arises”. In late 2020 Breakfast Club founder Jonathan Arana-Morton put out an open call for applications for its managing director position after admitting the brand had failed to “realise its potential” of growing to around 30 sites. This led to Be At One cocktail bar founder Steve Locke joining on an interim basis in January 2021.

 

The company said: “The directors remain confident about the future trading prospects of the business despite relative uncertainty regarding Covid-19-related government restrictions. Despite making an operating loss, the directors are confident the company will make an operating profit in FY22.”

 

Turn up for Tortilla

 

Tortilla achieved a 79% increase in group revenue to £48.1m in its 2021 financial year, a 36% increase when compared with 2019, according to a trading update.

 

The fast-casual restaurant group said this was driven by growing customer demand across eat-in, takeaway and delivery, and underpinned by the continued roll-out of new sites.

 

During the financial year to 2 January 2022, Tortilla opened new stores in Edinburgh, Exeter and Windsor; new delivery kitchens in Balham, Manchester and Brent Cross; and launched its first site in partnership with Merlin Entertainments at Chessington World of Adventures, taking the total number of company-run locations to 51. Delivery now comprises more than 30% of total group revenue.

 

The group said trading continued to be “very positive” despite the emergence of the Omicron variant of Covid-19. The board was confident the group would perform in line with expectations for the 2022 financial year as the reduced financial assistance from the UK government would be offset by reduced trading restrictions.

 

The board also expressed confidence in Tortilla’s plans to open 45 new sites in the next five years after admission of the group to AIM in October 2021 raised £5m for the company to accelerate its growth plans.

 

Losses continue

 

While pandemic pivoting brought benefits to some businesses, it has emerged that losses at the UK’s 100 biggest restaurant groups increased by 174% in the year to September 2021 reaching £673m, according to data from accountancy group UHY Hacker Young. The increase compares to losses of £246m in the year to September 2020.

 

Peter Kubik, partner at UHY Hacker Young, said: “The end of lockdown has not resulted in a painless rebound in fortunes for the sector. Many restaurants are struggling to pass on increased food and wage costs to customers, which is putting margins back under pressure. Omicron is just the latest set-back for an industry hit hard in the last two years.

 

“They are also facing the threat of decreased consumer spending due to April’s increase in National Insurance.

 

“The government has stepped in to help and provided a great deal of support for the sector but it’s likely that even more will be needed, it’s no surprise that the industry is fiercely lobbying for an extension of its lower VAT rate.”

 

During the Covid-19 lockdowns it is estimated lost sales saw the hospitality industry miss out on £200m a day, with businesses still incurring costs including rent and utilities.

 

The pandemic drove several chains, including Prezzo, Byron and Carluccio’s into insolvency, while others were forced to reduce their estate or pursue CVAs to ensure their survival.

 

Grants and funding

 

The government has delivered funding to councils in England towards one-off Omicron grants for hospitality, leisure and accommodation businesses that saw a decline in footfall ahead of Christmas. Operators are able to apply for one-off grants of up to £6,000 per premise depending on rateable value: those with a rateable value of £51,000 or above are able to apply for the maximum £6,000, while businesses with a rateable value between £15,000 and £51,000 can apply for £4,000, and £2,667 is available for those with a rateable value of £15,000 or below.

 

Businesses have been encouraged to apply to their council for the funding, which will be administered “over the coming weeks”.

 

Venues eligible for the grants are those that offer in-person services, where the main service and activity takes place in a fixed rate-paying premises. This includes businesses whose main function is providing a venue for the consumption and sale of food and drink, those that provide facilities linked to recreation and entertainment, as well as businesses whose main premise is used for holiday accommodation.

 

The government has allocated more than £100m to the Additional Restrictions Grant (ARG) fund for local authorities in England. Other businesses impacted by Omicron, such as those that supply the hospitality and leisure sectors, are able to apply for grants through the ARG. Business secretary Kwasi Kwarteng has written to those local authorities with more than 5% left from previous ARG funding rounds, instructing them to disburse their funding.

 

However, when the grants were announced operators were quick to say that a £6,000, one-off payment would not begin to offset their losses and branded the support package “way off the mark”, and said it “would not touch the sides”.

 

Applications for funding for Welsh businesses are not expected to open until 17 January. The Northern Ireland Executive announced one-off grants for venues of up to £20,000 depending on their rateable value – but hotels were excluded, and funds were not expected to be paid for another week.

 

The one-off December and January Business Support Top Up grant in Scotland closes for applications on 31 January, with local authorities making contact between now and the end of January for businesses already on their records having received previous funding.

 

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