Casual dining sector: A perfect storm?

What was once seen as a sure fire bet for the High Street, now seems to be a poisoned chalice.  Chains that were falling over themselves to add to their restaurant portfolios 3 to 5 years ago, are now having to reign back expansion plans, or in more cases now, close swathes or underperforming sites as financial reality hits.

Where did it all go wrong?

Many famous names from the casual dining sector have been hit from Carluccios, Prezzo, Jamie’s Italian, Byron and Strada; but, it is not just in the UK, but also in the USA where both Red Lobster and Olive Garden have had their woes.

Undoubtedly, some chains over-expanded, financed on the back of low interest rates and promises to the stock market of increased market share and number of venues.  This was all predisposed on the expansion of the public’s disposable income and continued increase of eating out.  The catering press would continue to report on the latest fad in the sector, Mexican, Peruvian, American BBQ, Thai, Spanish small plate tapas, seemingly random fusions with a growing number of small to medium chains opening to follow these trends.

Prime sites with high foot traffic, such as new shopping centres or the West End, were having ever larger lease premiums added and staggering sums were offered to buy existing restaurants out of their leases.  When many of these restaurants were then spending anywhere between £750,000 to £1.5 million to kit out the new site, whether from empty shell or rebranding of an existing site, it equates to many years of service to recoup just the initial investment.

Since then, there have been body blows to the sector with ever increasing business rates, the low value of sterling increasing the cost of imported raw ingredients, uncertainty in the low-paid employment sector regarding Brexit on which so many of these restaurants rely, the expansion of most pubs to enhance their food offerings and the continued push by delivery services for a multitude of restaurants and takeaways.

The future?

Further rationalisation must be expected in the short to medium term and it will be interesting to see if some of the largest chains who so far have traded strongly will continue to be unaffected – Wagamama and Nando’s, for example.  We can expect the strongest brands with the most defendable position, either through their trading style allowing them to minimise the number of staff at each site, or by cornering niche markets to thrive, whilst the weakest with the tightest margins will disappear – ‘twas ever thus!

But it does appear to have given more opportunity now to the smaller, independent operators who offer something different and have been pushing distinctive approaches such as high levels of local food sourcing, low or no waste operations and a more creative approach to differentiate individual sites even if under common ownership.  The key to it always though is to maintain the quality and the “feel” of the original – ultimately that gave the opportunity to expand in the first place, which can be difficult when it is based around the original chef’s culinary skills.

Maybe there are exciting times ahead for the gastronome…

 

Blog written by Mark Hancock

 

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