Restaurants close to the brink as profit margins tumble

Chris Losh

Chris Losh

18 September 2018

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.’

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