Restaurants close to the brink as profit margins tumble

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Drinks: Drinks
Other: Business

Hundreds of restaurant companies make little or no profit at all, and dozens could close or be bought out in the next year.

Those are the grim findings of the latest research by the business intelligence company Plimsoll Publishing.

The report found that average profit margins have plummeted in the last year, from 19% to just 1.5%, with rising costs and deal-hungry customers squeezing restaurant’s costs and profit at both ends.

According to Plimsoll, 364 companies are making a loss (over half of them for the second consecutive year) while the number of companies in financial ‘danger’ has risen to 465.

More than 150 companies are deemed ‘ripe’ for a takeover.

Senior analyst at Plimsoll, Christopher Evans, puts the problems down to a ‘toxic combination of changing demand and oversaturation’ and predicts a period of consolidation as cash-strapped businesses sell up.

‘If ever there was a market in need of consolidation, it’s the restaurant sector,’ said Evans. ‘The UK consumer has almost limitless choices of places to eat and little loyalty.

‘Too many companies competing for an increasingly cost-conscious and value-driven customer does nothing for an operator’s bottom line.’

The last 18 months have already seen a wave of closures, and the turmoil created by Brexit in six months time could exacerbate things further.

‘It’s the elephant in the room,’ said Evans. ‘Businesses existing on 1.5% margins are not well placed to cope with disruption or cost increases. If the cost of supplies increases or the supply of labour shrinks significantly, driving up wages, costs could soar and catch out even the more stable operators.

‘In such a competitive market, passing on higher costs to the consumer will be difficult and some will run out of cash and credit to carry on.’

About Author

Chris Losh

After five years working on My Weekly magazine (during which time he learned how to write horoscopes and make things out of mince) in 1995 Chris Losh entered the world of drinks writing and, despite all advice from his doctor – and the wishes of most South African winemakers – has stayed there ever since. He began on Wine and Spirit International, editing it for several years before moving on to edit Wine Magazine. Both publications have since gone the way of the Dodo, but he claims to have nothing to do with their demise, and his alibi appears solid, since he was freelance writing for anyone who would pay him at the time. In 2007, he helped to set up both Imbibe magazine and the Sommelier Wine Awards, and has spent much of the last three years eating, drinking, and listening to French sommeliers talk about minerality. In 2009 he was shortlisted for the Louis Roederer Feature Writer of the Year, but didn’t win. Perhaps he should have stuck to horoscopes. And mince.

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