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Is the restaurant sector struggling with hunger pains?

By rotide
Created 19/12/2018 - 11:55
Kitchen.jpg

Due to this, the UK restaurant sector is facing major disruption according to Duff & Phelps, the global advisor that protects, restores and maximises value for clients.

Jimmy Saunders, Director at Duff & Phelps [1], stated: "While the march of technology has offered growth in channels which didn't exist several years ago, the disruption this has caused to the restaurant sector presents challenges and often requires capital investment at a time when the business faces many other cash flow pressures.

"Inflation continues to run at around 2.5%, levels not seen since 2012, which is driving food and beverage prices up at a time when consumer confidence levels are still showing a negative downward trend. Real wages have contracted for ten years now, the longest period of contraction since the 1860's and while customers put choice and convenience high on the menu, value will always be a key decision-making factor."

Labour costs continue to rise as national minimum wage increases are implemented; from April this year, 21-year-olds have received £7.38 p/h, up from £6.50 three years ago, an increase of 14%. The hospitality sector also maintains a large proportion of staff on zero-hour contracts, which, given the recent spotlight, makes them vulnerable as at least one major political party has pledged to ban the contracts outright.

"Outrage over business rates has been grabbing headlines for years, underscored by the recent slew of businesses with a high street presence having to be restructured, whether via Administration or Company Voluntary Arrangement (CVA), or even being wound down. Although this year's Consumer Price Index (CPI) is going to be used to set business rates, pegging against the Retail Price Index (RPI), property costs are increasing significantly just at the time when customers demand more value for money. The trifold squeeze on margin is coming from revenue, costs and overheads," added Jimmy.

Commissions payable to the online platforms are typically in the range of 20% to 25% of the order value; taken with the loss of wet sales associated with delivered food, it fundamentally alters the business model and owners must adapt to this.

Traditionally, the capacity of a kitchen only needed to account for the number of covers. Now, with online orders coming in at the same time, a kitchen must cater for in-house covers and delivery orders. Demand peaks surge around the same time making it potentially challenging from a capacity and staffing perspective.

The property market is therefore changing, with properties with access for delivery agents moving away from dine-in customers; and those with a larger kitchen capacity or one which can be extended to meet the demand for take away, now attracting a premium.

Jimmy added: "The future will undoubtedly see the online home delivery market evolve further and we already see certain aggregators operating 'dark kitchens' servicing only online delivery orders. This follows the 'dark store' model operated by some of the supermarkets as they first transitioned into the online grocery model. At the moment, smaller operators don't have the scale or capital to do this themselves, much as independent grocers couldn't compete with the supermarkets; however, the difference is that the aggregators are presently applying this model in conjunction with existing branded restaurant chains.

"It is only a matter of time before the aggregators themselves look to create white label offerings of a quality to match branded restaurant food so that they can take the additional margin themselves. While this is a clear risk, it also presents opportunities for the aggregators to exercise much more control over output and reputation. We only need to look at supermarkets to see how quickly the private label has caught up with the brands over recent years."

The positive news is that the market is still growing and according to the market analyst NPD, the food delivery market is expected to increase by 10% per year to £5.3bn by 2020. While disposable incomes may be flat, people have enough 'stuff,' so are increasingly looking to spend their cash on experiences, including dining at either a restaurant or at home.

Jimmy concluded: "The restaurant trade is going through a period of sustained change and the skill will be in balancing day-to-day cash flows in a challenging market against securing the vital capital investment required to shape the business for the future. Our UK Restructuring Advisory team is uniquely positioned to advise the industry and stakeholders, whether this involves securing the right investment for the business, managing creditors through a transitional period or providing restructuring/solvency advice."

www.duffandphelps.com [2]


Source URL:
https://www.newbusiness.co.uk/articles/trainingeducation/is-restaurant-sector-struggling-with-hunger-pains