What’s happened to the UK restaurant economy?
Making comment on the news story, Simon Blagden, chief executive of the Jamie Oliver Restaurant Group, said: “As every restaurant owner knows, this is a tough market and, post-Brexit, the pressures and unknowns have made it even harder.”
Whilst we are reticent to start attributing cause to anything Brexit related at this point, research by CGA Peach undertaken straight after the EU referendum suggested that just 15% of senior executives in restaurant, pub, bar and cafe groups were confident about prospects for the market immediately after the EU referendum. This is in stark contrast with surveys that were taken at the beginning of 2016, which revealed that 75% of senior executives were confident about prospects for the market, (which was in fact down from 95% at beginning of 2015).
A follow-up survey taken in November 2016 revealed that confidence levels were rising post the EU referendum to 50%. However, this was only for the 6 months looking ahead, the levels dropped again to 36% looking forward to the 12 months ahead.
A look at the figures: business growth
If we take a broad look at the sector statistically, the number of UK accommodation and food service providers has been showing modest growth year on year since 2014: from approximately 179,000 businesses in 2014 to 186,000 in 2016.
Figures are not available for the restaurant industry alone, however the number of businesses providing food and beverage services has grown from approximately 137,000 in 2014 to 149,000 in 2016. In both cases, the number of businesses grew more from 2014 to 2015, than 2015 to 2016: the food and beverage industry grew by 5 -6% from 2014 to 2015 and by 3 – 4% from 2015 to 2016.
To put this in the context of all UK businesses, from 2014 to 2016 the industry accounts for approximately 3% of all UK businesses – and this has remained fairly steady. The growth rate of UK businesses was approximately 3% in 2014 – 2015 and approximately 2% from 2015 – 2016.
The end of the business cycle
If we turn the coin over, and look at figures available from the Insolvency Service, we see that there has been a plateau or a very gradual decline in the number of food and accommodation sector insolvencies since 2014.
The illustration below shows that insolvency rates across all business sectors have been in a steady state of decline generally whilst the total number of UK businesses has kept growing. However, the rates of food and accommodation sector insolvencies are not slowing down as quickly as insolvencies across other industries. There were 6398 food and accommodation sector insolvencies in 2014, and there have been in the region of 6000 each year since.
In short, taken across the UK as a whole, there are modest numbers of new businesses springing up; but each year, just about as many businesses as the previous year go out of business. So let’s look in more detail at some of the specific concerns that businesses are reporting.
The costs of being in business
Industry executives raise concerns about increases in business rates, increases in the costs of raw materials and ingredients, the falling value of the pound, decreases in staff availability, and a general skills shortage in the industry when thinking about future prospects.
Business rates and increased competition
Concerns about increases in business rates are UK-wide, particularly amongst those businesses that lease sites in urban areas. As rates in London have increased dramatically and forced some businesses out of the south, there has been an increase of new restaurants outside of the city. Manchester has the fastest rate of UK restaurant and bar openings outside of London, for example, with 30 new openings in 2015 and a similar amount for 2016. However, the city now has some of the highest headline rates in the country outside of London and the southeast, which range from £10 – £50 per sq ft. in the city centre. Whilst customers enjoy the diversity of the city’s offer, there are fears that the booming market in Manchester could possibly be reaching saturation point.
Rising costs of raw materials and decrease in value of the pound
According to DEFRA statistics, 48% of all food consumed in the UK is produced outside of the UK. The UK’s highest imported products are fruit and veg, followed by meat and beverages. Although the prices of coffee, tea and cocoa, fruit, sugar, jam and confectionery, and butter, margarines and oil prices have all risen by 30% or more since June 2007, since 2014, they had begun to fall. In the year to June 2016, prices fell in most food groups with the exception of butter, margarine and cooking oil, which increased by 2.0%. Nevertheless, there is concern that any benefits received by falling prices are likely to be negated if the costs of imports increase in the wake of Brexit.
Skills shortage and staff availability
The numbers of staff working casually and part-time has grown dramatically in the last 5 – 10 years, according to Martin-Christian Kent, Executive Director of Research and Policy at People 1st. Writing in The Caterer, he argues that whilst this can help businesses financially, it can also make it hard to retain staff – female staff in particular.
63% of all part-time roles in hospitality and tourism are filled by women. Part-time roles are especially attractive to women with childcare commitments. However, there are 3,000 more women with two jobs in the sector than three years ago, which suggests that women in the sector are looking for more hours, and better opportunities. Nevertheless, whilst 71% of waiting staff are female, they represent only 41% of restaurant managers. Herein lies the challenge. Accommodating working hours which suit the business and employees, whilst providing progression opportunities and benefits, which will ultimately increase staff retention and skills.
Recent news that the government is considering plans to charge businesses annual fees of £1,000 for every European worker employed in the UK received a fierce backlash from business leaders. Whilst the government quickly distanced itself from these claims, such rumours add further layers of concern over future employment and skills prospects for the industry.
UK hospitality moving forward
In another high profile case last year, on a much larger scale and outside of the south / southeast, The Restaurant Group announced closures of 33 of its sites in Bangor, Newcastle, York, Scotland and Northern Ireland. The group has 500 restaurants and pubs in the UK as a whole. Of its closures, Frankie and Benny’s suffered the most (14 closures), closely followed by Chiquitos (11 closures). According to the group, these restaurants lost customers because of significant price increases; a change in menus that was implemented without sufficient testing; and a lack of leadership for the brand over the last two years that had resulted in an “inconsistent and unsatisfactory service experience” for many of its customers.
The lessons are clear and correlate with CGA Peach’s research which showed that moving forward, companies are focusing on investing in staff training, employee engagement and digital marketing in their efforts to mitigate against future economic uncertainty. Interestingly and rather optimistically, CGA Peach also found that operators were much more confident about prospects for their own businesses, than they were for the market as a whole. Despite their concerns, 59% of senior executives interviewed were optimistic about their own operations’ prospects both over the next six months and the coming year.