In the last few weeks, I’ve had a number of conversations with clients concerned about the state of the restaurant market with the big chains reporting financial difficulties. The industry is facing higher costs with an increase in the London living wage, rates and most suppliers increasing prices due to the devaluation of the pound in the wake of the Brexit referendum. Speaking to an agent this week, he estimated that there are currently 4,500 restaurants on the market in the UK. Brexit has also made recruitment more difficult.
However, I think it’s a great time to be launching a restaurant (we are currently looking for our second site for Firebrand Pizza, which I co-own – we currently have an offer on an ex-Byron site, so fingers crossed!). The turbulence in the market will have the positive effect of reducing rents and premiums. Great sites will also be coming onto the market. It should be remembered that a lot of the difficulties faced by the big chains stem from over-expansion and falls in quality. Big investors wanted lots of new openings resulting in locations which were unsuitable for that brand and they also forced cost-cutting. Italian food especially is about great ingredients (you can’t hide poor ingredients with spices like you can in a curry for example).
Ultimately, customers tasted the drop in quality and went elsewhere – they struggled to maintain brand loyalty. Those brands got hooked on heavy discounts (2 for 1 vouchers etc) to fill restaurants – not a sustainable business model.
It’s still a fantastic industry to be in, but operators have to get everything right – from the restaurant branding to serving consistently great food. A sharp eye does need to remain on costs (it’s a very easy business to haemorrhage money), but operators who cut quality do so at their peril.
