For two decades the growth in the restaurant sector has been significant, with changes in the way people treat eating out underpinning this. The real winners over this period have been the big chains, with aggressive roll outs driven by a private equity boom leading to a significant growth in their market share. The last 18 months have seen a noticeable change in the market, with real post tax income falling behind inflation at the same time as costs in the sector have leap up and consumer confidence at its lowest level in over 5 years according to recent research from Deloite. There is a shortage of skilled employees, especially chefs, which along with the introduction of the National Living Wage has led to a big increase in staffing costs. Add to this the new higher business rates that many restaurants have had to deal with during 2017 and the increased cost of raw materials post-Brexit (the majority of food is imported and saw 18% increases owing to the collapse of Sterling) and it is easy to see why the sector is struggling.
Many chains concentrated on expansion, measuring success by number of sites rather than the quality of those sites and now find themselves over stretched and in some cases having to enter Voluntary Arrangements in an attempt to stave of Bankruptcy. Cost cutting has led to even lower quality from these big chains (and many weren’t that great to start with) which, with so much choice available coupled with shrinking disposable incomes, has led these businesses into even more trouble. A recent study by UHY Hacker Young found a third of the biggest 100 restaurant groups are now making losses, whilst both KPMG and Ernst & Young are predicting significant failures in this sector during 2018.
The only sector that has seen growth over the last year has been independent restaurants and smaller brands (under 10 sites) and in Deloite’s report they have listed a few key areas of growth including informal dining, healthy eating and food provenance and sustainability – generally not the preserve of larger chains. Home delivery is also becoming a lifeline for many restaurants with growth running at 10 times that of the eat in sector.
The eﬀects on the wine trade both good and bad are plain to see, with margins in the on-trade suﬀering and growth in the oﬀ-trade. Home delivery services are booming, as we have seen with the success of Deliveroo and, with a greater percentage of wine being consumed at home, the retail sector is benefiting.
The suppliers who have concentrated on serving the big chain restaurants will really feel the eﬀects this year and it is doubtful whether they have the oﬀering or service to appeal to independent outlets. A new generation of diners are focusing on smaller local restaurants who take care with their sourcing, and there lies the real value of independent merchants like Jeroboams.