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Why are restaurants struggling?

By Connor Freitas
October 11, 2019, 10:26 AM GMT
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    The UK is reeling from a casual dining crisis. Why are chains shutting dozens, if not hundreds, of eateries?

    Why are restaurants struggling?

    Restaurants struggling to entice customers are no longer the preserve of TV shows such as Ramsay’s Kitchen Nightmares. It was already tough to survive in the casual dining sector, with an estimated 60 percent of restaurants failing within the first year, but some analysts are warning that even established chains are facing a full-blown crisis.

    But where in the world are struggling restaurant chains based? Well, research suggests that the UK is bearing the brunt of the downturn. In August 2019, an average of 18 British eateries were closing every week. Some of the country’s biggest brands have disappeared entirely from town centres, including a chain of Italian restaurants owned by TV chef Jamie Oliver. Despite the star sinking a substantial amount of his own money into keeping the business afloat, all but three of his 25 British locations closed their doors for good in May.

    Another UK company, The Restaurant Group, recently unveiled plans to retreat from dozens of underperforming sites. After announcing plans to shut 72 Frankie & Benny’s sites, another 42 closures were confirmed in September. The financials make for dire reading – in the first six months of this year, the group recorded an eye-watering pre-tax loss of £88 million ($107.6 million). In the same period back in 2018, it had ratcheted up a modest pre-tax profit of £12 million ($14.7 million). Its share price has suffered accordingly, tumbling from highs of 537p at the start of 2015 to lows of just 112p in March 2019.

    It seems the British public have it in for Italian restaurant chains. Carluccio’s was just two weeks away from collapsing entirely, but has managed to crawl back from death’s door after making the decision to close 34 of its restaurants last year. Things are now starting to look bleak for Pizza Express, with its 470 UK restaurants struggling to stay in the black. One stark report estimated that its levels of debt stand at £1.8 million ($2.2 million) per restaurant.

    Two further Italian-themed chains, Strada and Prezzo, along with steakhouse Gaucho and French-themed Côte Brasserie, have also been forced to make closures. Each of these well-known brands would undoubtedly blame their demise on different factors, but there are some recurring themes.

    Chain restaurants struggling: What are the causes?

    According to commercial law firm Laytons LLP, the UK’s casual dining sector is suffering from saturation. There are simply too many tables out there that aren’t being filled, with its report warning that it’s “more expensive than ever to run a restaurant business” due to the soaring cost of labour, supplies, rent and rates.

    Some of the bigger struggling restaurant chains often have two identical outlets situated just a couple of miles apart – duplicating overheads unnecessarily when consumers can travel to either one of them with ease. Poor location choices have been another fatal factor, as well as a lack of understanding about what the modern consumer wants.

    Social media has become nothing short of essential for attracting footfall, with word of mouth spreading through “Instagrammable” meals and interiors. If a 20-something out with her girlfriends doesn’t want to take a filtered portrait of her starter, it can spell big trouble for a restaurant.

    Many chains have become terribly out of touch with their customers, offering a product that’s too highbrow or lowbrow for the local clientele. Those that fail often haven’t been paying attention to what the competition is doing, or they’ve been failing to generate additional revenue by “upselling” premium menus, dishes, side orders and more expensive bottles of wine. If you’ve got diners who are out to splash some cash, why not give them plenty of opportunities to do exactly that?

    Here’s another area where struggling restaurants need a rethink: keeping hold of their staff. It costs money to constantly train staff to the right standards, only for them to leave a few months later because they are demoralised. Reducing this churn is vital – and keeping staff motivated subsequently shines through in the customer experience, spurring them on to leave positive reviews.

    Are all restaurants struggling?

    Far from it. Peri-peri chicken chain Nando’s is close to generating an astronomical £1 billion ($1.22 billion) in annual turnover. The brand’s success lies in how it has managed to attract young and old customers alike, offering personalisation, a range of new dishes and a hybrid of fast-food and sit-down meals.

    It seems the key to success is keeping a firm finger on the pulse of what the public wants. Younger diners are more interested in healthier options and knowing the provenance of their food, and the rise of online services such as Uber Eats and Deliveroo means consumers want more than a nice main course when they head out – they want an experience.

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