Publication featured in: The Evening Standard, CityAM, restaurantonline and harpers
The UK’s Top 100 restaurant groups have recorded a twelvefold increase in their profits in the last six months, rising from £19.9m in September 2022 to £241.8m in March 2023.
This amounts to a 3% average profit margin for the UK’s biggest restaurant groups – a marked increase from the 0.5% average profit margin recorded in September of last year. Large-scale restructuring projects by major restaurant groups are finally bearing fruit after years of losses for the UK’s restaurant sector.
The UK’s Top 100 restaurant companies finally returned to profitability in September last year having been lossmaking since 2018. However, recent rises in interest rates puts that rebound in profitability at obvious risk.
Following private equity funded overexpansion during the 2010s the sector went through a rash of restructuring and insolvencies. This was followed by further stress from the COVID pandemic and now the cost-of-living crisis hit the sector.
I have identified several key measures which restaurant groups were forced to take to return to profitability, including:
- Extensive closures and write-downs of loss-making outlets
- Staff redundancy programmes and a reduction in hours for remaining staff
- Capping borrowing costs with the use of derivatives
- Negotiating longer-term fixed energy prices with energy suppliers
- Cost-cutting throughout supply chains and securing price guarantees, including switching to cheaper ingredients
Gourmet Burger Kitchen (GBK) is one such example of a chain that had to go to several rounds of reorganising before it has returned to profitability as part of the Boparan Restaurant Group. GBK closed 26 restaurants as part of a pre-pack deal in late 2020. This followed the closure of 17 loss-making sites in 2018 – GBK now has 35 operational outlets in 2023.
I caution that restaurant groups should not become complacent as high inflation and high interest rates pose major challenges.
These latest profits are a very encouraging sign. The health of the hospitality sector has been a concern since long before the pandemic and these figures show the recovery is well underway.
That restaurant groups have done as well as they have underscores the value of the restructuring many of them have undertaken in recent years.