2018 is already looking like the end for many franchises. At the very beginning of the year, Strada announced the closing of close to half its UK sites. In its wake, Jamie Oliver Restaurant Group is currently considering the future of 30 of its restaurants, while Byron is seeking a 45% layoff from its landlords across 20 of its branches. With other chains forced to sell off underperforming sites, and others expected to follow suit, it looks like this year could be the industry’s most difficult in recent memory.
Early signs suggest it’s not just big hitters such as these who’re experiencing the crunch, though they are sucking up the large proportion. In fact, the smaller end of the market is getting bigger, while mid-market businesses, especially the more family-oriented ones, are increasingly amputating branches left right and centre. The latter instigates fear wherever you are in the industry, you’d think, but is it really cause for concern?
In truth, perhaps the need to lay out warnings for the following year (or years) is moot – chains such as Strada and Byron are always looking for opportunities for expansion, and in this case – given the current and unprecedented economic climate the industry finds itself in – they were not ready to adapt. Right now, we are seeing the repercussions of an unfavourable climate catch up with an underprepared traditional monopolistic business model.
But perhaps this is where sympathy is due: no one could expect the Brexit vote to swing the way it did, and no one could predict the rising food costs and the plummeting consumer confidence and value of the sterling which came after it. No one saw the dramatic spike in business rates, a cruel blow dealt not long after the reality of Brexit had set in. And few anticipated the extent of the impact of inflation before it was married with smaller wage growth.
Thus read the reports. But what about operators’ experiences firsthand? In spite of a 1.8% general rise in sales across the industry at the time, Franco Manca owner Fulham Shore voiced their concern at a significant slowdown in their trade during last summer over their 30-odd sites, and warned the rest of the industry of what may come. They weren’t the only ones: Wildwood, Chiquito, and Comptoir Libanais expected a tougher trading environment in the months or years to follow.
And as we’re seeing at this moment, they weren’t necessarily wrong. But misfortunes have, for a large part, spared other brands. Yotam Ottolenghi’s fleet of restaurants for example – currently five-strong – surprised even its founder by posting a gross profit of over £12 million in the last financial year. Indeed, as Ottolenghi suggests, latest figures from 2016 suggest it’s the smaller brands which are experiencing the most growth. But are they universally at more risk now?
With relatively few financial-related casualties among small restaurant businesses in the past year or so, it’s tempting to say no. Still, no one’s out of the woods. MCA recommends reaching a like-for-like sales growth of 3% over the next few years for operators to ensure healthy profit levels, while chains culling their branches should peter out. That being said, with the possibility of more repercussions of movements in the industry round the corner, confidence in any prophecy or potential statistic seems like a hard ask.