How can they turn the temperature down?

Restaurants are one of the lifeblood industries within the whole economy.  

They span so many different areas and specialities, everybody has experience of them and they are such an important bellwether of the wider economic performance because when our favourite restaurant closes, it means more because of all the happy memories of great meals than say, if our favourite hairdresser or hardware store shuts down. 

Which is why the latest official figures from the insolvency service should be concerning for everybody – not just those who own, run or operate restaurants and food service businesses – but those of us who enjoy eating in them too. 

In the first quarter of 2023, a total of 569 restaurant businesses went into insolvency which is the highest single quarterly figure recorded in over a decade.  Over the first four months of 2023, this rose to 704. 

Looking back over the whole of 2022, there were 2,523 insolvencies which was a 61% increase from the previous year and meant that nearly seven (6.9) restaurants a day were pulling the shutters down and turning off their ovens for the final time. 

The first figures are both static restaurants and mobile food service businesses such as artisanal pizza vans.  The second, the event catering and food service businesses which cater national and international events all the way down to weddings and other intimate gatherings. The final figure is beverage services which concentrate on drinks. 

Restaurant insolvencies 2019 to 2023 (to end of April 2023)

YearsRestaurants/Mobile Food ServiceEvent Catering & Food ServiceBeverage ServicesYearly total
Figures from The Insolvency Service

We can see that restaurants and mobile food service insolvencies are the most numerous but all categories saw an annual increase in 2022 from 2021.  Based on the 2023 totals to date, all three are looking to overtake these figures by the end of the year if they continue their current trajectories as well. 

The Office of National Statistics (ONS) did some further research which showed some interesting undercurrents. 

National Statistics research found that in a survey of restaurant owners and directors, 33% reported that their turnover was rising compared to 22% who said it was falling.  

This was a reversal of the findings from six months ago when only 16% reported rising turnover compared to 37% seeing a reduction. 

Furthermore 53% have said they would be considering raising their prices to meet the increased cost of ingredients, wages and energy bills compared to 43% at the end of last year. 

Kate Nicholls, chief executive of UKHospitality, said: “ These figures show an alarming increase in restaurant closures and clearly demonstrate the challenges faced by hospitality businesses big and small, all across the UK. 

“Our members are reporting energy costs up 80% year-on-year, food price inflation for hospitality and restaurants up 22% and on top of this, rising interest rates are compounding the pressure on those businesses that have had to take out loans in order to survive.”

Martin McTague, national chair of the Federation of Small Businesses, said: “It’s sadly not surprising that some can’t make the sums add up, with hospitality businesses around half again as likely as businesses in all sectors to say that they have low confidence that they’ll be able to keep on top of their debts according to the ONS.

“FSB’s own research found the confidence level for hospitality firms lagged behind the finding for all sectors in the first three months of this year. 

Spinning plates

Chris Horner, insolvency director with BusinessRescueExpert, said: “Restaurants are capital-intensive businesses. The cost of acquiring leases and outfitting restaurants can run into thousands, even millions per site in prime city centre locations.

“Interest rates remain high and look likely to increase which will leave these highly leveraged businesses in the restaurant sector unable to service their debts including loan repayments for bank lending or bounce back loans. 

“In addition banks themselves are clamping down harder on non-performing loans and shifting their focus from supporting distressed businesses to supporting those with better growth prospects which will lead to a rise in insolvencies in the industry, even if trading conditions improve in the remaining months of 2023.

“Depending on their circumstances, an administration or a company voluntary arrangement (CVA) could help them buy time to restructure their restaurant business to allow them to write off or pay down debts in a more manageable way and put them on a stronger financial footing for the future. 

“Alternatively, if their finances are too stretched and there’s no viable way for them to recover to a profitable position then they can consider a creditors voluntary liquidation (CVL) which will allow them to close the business efficiently and effectively, writing off unsecured debts such as bounce back loans.  

“They would then be free to start afresh without crippling debts weighing them down, letting them focus on what they do best.”

If the next six to 12 months are going to be as economically tight as all indicators predict, although there’s no guarantee this will happen, then even more restaurants, cafes and bistros will find themselves facing hard and heart breaking decisions about their future. 

That’s why taking advantage of the time they have available now to get some professional and impartial advice could be the secret ingredient they need that will make all the difference. 

Directors or restaurant owners can get in touch to arrange a free initial consultation with one of our team to explore their options depending on their unique circumstances.

Once they better understand what they can do, we can help them with their next steps in the short and medium term to achieve the best outcomes possible. 

So make your booking today – we’ve always got a seat at the table for you.