Restaurant industry sees ‘significant increase' in financial distress

Subdued consumer spending and fierce promotional activity have contributed to a "significant increase" in financial distress in the restaurant industry, according to Begbies Traynor's Red Flag Alert data.

The report, which monitors the financial health of UK companies, has said 11,091 businesses in the £5.9b sector are in "significant" financial distress, as experts warn that some operators could struggle to meet rent obligations due on 25 March.

The figures mark an 8% year-on-year increase in the number of restaurants in financial distress.

In the first three months of 2018 several major casual-dining chains, including Prezzo, Jamie's Italian and Byron, announced closures and pursued Company Voluntary Agreements with creditors.

The report states that a decrease in consumer spending and a "perfect storm" of rising costs, increased competition and an over-dependence on promotional offers are behind the turmoil.

Julie Palmer, a partner at Begbies Traynor, said: "The UK restaurant sector is facing a perfect storm of pressures ahead of this week's quarterly rent day, with growing labour costs from the National Living Wage, subdued consumer spending and fierce competition from established high street chains coming together to cause a spike in financial distress across the industry.

"As rising inflation continues to hit real wages, UK consumers are proving increasingly cautious when it comes to their discretionary spending, meaning that there is even more pressure on restaurants to put on margin-squeezing meal deals to entice diners through their doors. Unfortunately, for those restaurateurs experiencing both declining sales and rising costs, the upcoming quarterly rents payment this weekend could be too big a financial hit for many to swallow."

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