A downturn in the restaurant sector has led to a decline in job vacancies of 11% over the past six months, states a report published today.
The UK-wide review of the industry by accountancy firm Moore Stephens found there were 32,900 vacancies in April 2018, down from 36,900 in November 2017 and that restaurants’ profits had plunged over the past year. It stated that many chains were being forced to close unprofitable sites and reduce staff numbers at other branches.
Insolvencies of restaurant businesses jumped 20% to 984 in the past year, up from 825 in 2015-16.
Minimum wage rules
The sector had gone through a period of rapid growth until around the end of 2015, analysts say, with the numbers of restaurants and mobile food providers rising to about 84,000 in 2016 from 63,000 in 2008 according to Statista.
Moore Stephens said that this had led the industry to suffer from over-capacity. But it also claimed that external factors had hit the sector hard, such as the 33p (a higher than usual annual increase) rise in the minimum wage for those aged 25 and over from £7.50 last year to £7.83 this year (£7.05 to £7.38 for 21-24 year olds).
Other payroll-related burdens cited by Moore Stephens included pensions’ costs, caused by auto-enrolment, and the apprenticeship levy.
Simon Fowles, director at Moore Stephens, said: “Many restaurants simply cannot afford to remain open at the current level of staffing costs and with consumer confidence so weak there doesn’t seem to be much relief in sight.
“Five years ago, it was usual for around a quarter of revenue at most restaurants to go on wages for its staff. Now, if a restaurant spends 30% on staff pay, it is considered to be doing exceptionally well.”
He suggested that the Government look at reducing national insurance contributions for the sector.
One of the hardest hit areas of the industry have been the mid-market chains, many of which expanded rapidly until 2016.
Last week, Carluccio’s became the latest chain to signal its difficulties when it announced it could be set to lose around one-third (34) of its 105 restaurants and was pursuing a company voluntary agreement (an insolvency process allowing a company with debt problems to come to individual agreements with creditors). It said negotiations would take place with landlords regarding the loss-making sites to seek “mutually agreeable terms”.
Well-known brands Jamie’s Italian, Byron, Strada and Prezzo are among other chains to have undertaken CVAs and announced widespread closures recently.
Last year, the Government’s Insolvency Service reported a 20% rise in restaurant failures and despite Moore Stephens’ findings on costs, most in the sector point to oversaturation as the largest single cause of the difficulties.
Will Beckett, the co-founder of the upmarket Hawksmoor steak restaurants, told the Guardian in February: “It’s idiocy by the landlords. There is a danger in restaurant companies growing too fast, compromising on quality and weakening the brand.” Another restaurateur, David Fox, who owns small chain Tampopo, pointed to the loss of a ready labour pool and uncertainty as issues: “What we didn’t see coming was Brexit and its implications on exchange rates, recruitment and consumer confidence.”
Meanwhile, Wagamama announced last week that it had defied sector trends and outperformed the UK market for 208 consecutive weeks, as measured by industry monitor the Coffer Peach Tracker. The company beat the market by 8.2% over the past four years, with a turnover of £229.5m in the 40 weeks to 29 January 2018, up from £202.1m the previous year.
In March, however, the company was fined by HMRC, along with many other hospitality industry businesses, for underpaying the minimum wage. It had failed to pay £133,212.42 to 2,630 workers after wrongly asking them to pay for elements of their uniform.
