The number of restaurant businesses going out of business in the UK jumped from 170 in Q3 2013 to 182* in the last quarter of 2013, according to Wilkins Kennedy LLP, the Top 25 accountancy firm. Figures show that restaurant insolvencies also jumped by 9% on the same period last year when there were 167 insolvencies in the three months running up to New Year’s Eve.
Increase despite economic recovery
This increase in restaurant insolvencies took place against the backdrop of a widely heralded economic recovery, which saw GDP grow rapidly in the last quarter of 2013 (up 2.8% on the same period last year).
Wilkins Kennedy says that the sharp decline in the fortunes of these restaurants was surprising considering the increase in consumer confidence and the “wealth effect” created by booming house prices, but that banks will have withdrawn funding from restaurants who could not demonstrate sufficient bookings for the key Christmas period.
Extreme weather impact
Extreme weather conditions in advance of Christmas would have depressed trading, with the windiest December in nearly 50 years, and in large parts of the country there was double the monthly average rainfall. With such harsh weather conditions, many restaurants may not have been able to benefit from the seasonal increase in foot traffic over the Christmas shopping period.
Anthony Cork, Partner of accountancy firm Wilkins Kennedy comments: ‘The Christmas period should be a big earner for most restaurants, and a healthy restaurant should have plenty of advance bookings for office Christmas dos and family celebrations. An empty reservations book in this crucial period is likely to be a sign of a wider failure to draw in the crowds.’
‘The recent flooding will only have exacerbated the problem. Trading in many rural restaurants will have been decimated.’
Restrained discretionary spending on restaurants
According to Wilkins Kennedy, the rise in restaurant closures is a sign that the economic recovery has not fully fed through to significant wage growth, restraining discretionary spending on restaurants outside of London.
Since 2009, there has been a rise in the number of restaurants closing in the three months leading up to Christmas. Wilkins Kennedy says that because of the economic recovery, restaurant owners were hoping that this would be reversed and that they would see a major boost to trade.
High profile closures
High profile restaurants have not been immune to closures. Despite being fronted by TV chefs with huge crowd pulling power, restaurants owned by Jamie Oliver and Masterchef’s Gregg Wallace have recently had to shut down due to poor performance, as have TV presenter Dermot O’Leary’s restaurants:
- Jamie Oliver recently closed three of his Union Jacks restaurants based in Holborn and Chiswick in London, and Winchester, citing a challenging economic climate.
- Masterchef’s Gregg Wallace shut his Putney restaurant Wallace and Co after it failed to attract enough customers.
- The X Factor’s Dermot O’Leary closed his Fishy Fishy restaurant in Poole, Dorset due to the bad financial climate.
Anthony Cork says: ‘With the economy just returning to form, individuals may not yet be enjoying the benefits of growth. It may take a while before improved consumer confidence is firmly established and spending in restaurants increases.’
* Based on data from the Insolvency Service
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