UK’s mid-range restaurant chains are battling for survival after Covid and cost-of-living issues

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

The woes of the UK’s casual dining sector are written in fine print in the English market town of Maidstone. A few streets away, an outlet of the Italian-American themed restaurant Frankie & Benny’s and a branch of the Italian restaurant Prezzo closed in just the last six months.

As consumers cut spending in response to the cost-of-living crisis and high input costs erode corporate margins, mid-range restaurant chains – which have rapidly expanded beyond city centers into central England cities in recent years – are struggling to recover from the lows of the pandemic.

In the 12 months to March this year, the number of casual food outlets across the UK dropped by 4.2% to 5,160 nationwide, nearly double the decline in the pub sector, according to data from the CGA by NielsenIQ and AlixPartners.

Within the hospitality sector “the narrow half is suffering the most,” said Milly Camley, chief executive of the Institute for Turnaround, the trade body for consultants who help struggling businesses avoid bankruptcy. “Either people are shelling out for expensive treats or trading, so anything in between is finding it really difficult.”

The shakeup is proving brutal: The owner of Frankie & Benny, The Restaurant Group, Prezzo, Richard-owned chain Caring Bill’s and burger joint Byron announced more than 100 closures this year.

The owner of Wagamama The Restaurant Group, the only casual dining group listed, is dealing with a group of activist fundswho collectively own up to one-fifth of the shares, and are pushing for a strategic reorganization due to underperforming share price.

Price last month cut off a third of his estateor 46 sites, putting 810 jobs at risk, as its chief executive Dean Challenger lamented “the toughest times” he had “ever seen on the high street”.

Entrepreneurs Luke Johnson and Hugh Osmond have done more than most to propel casual dining into the mainstream. After buying PizzaExpress for just £13m in 1992 and taking it public a year later, they quintupled its ownership to 200 sites in five years. But now they are much less optimistic about the sector.

Johnson told the Financial Times he thought casual dining had “peaked for at least this business cycle” as “a debt hangover and lack of investment” stemming from the pandemic as more operators entered administration, meaning that some chains would never fully recover. The number of casual restaurants decreased by 16.2% in the three years to April 2023, according to Local Data Company.

Osmond was even more pessimistic. “Casual restaurant chains, as they were, are largely dead,” he said. “That doesn’t mean that if you fast forward five years, someone hasn’t reinvented it. . . but what you won’t see is just the re-emergence of that broad-menu, middle-market, nothing out of the ordinary kind of casual dining.

The problems for the sector predate the pandemic. Private equity buyouts had led to pressure to expand beyond prime city center locations, often into smaller cities with fewer visitors, and made it difficult for companies to take on a lot of debt.

CGA data suggests that the sector was already in decline from 2018 onwards due to rising costs and the growth of take-out food options, but then the pandemic has further exposed these weaknesses, according to Peter Martin, an analyst at the sector.

Celebrity chef Jamie Oliver’s Jamie’s Italian restaurant chain was one of higher profile victims of the sector’s decline, falling into receivership a year before the pandemic, with the loss of around 1,000 jobs.

Oliver is relaunching in London later this year, but notably with a more premium offering to compete with restaurant chain Caring’s Ivy. People familiar with the launch plans said the reason for not returning to the UK mid-range restaurant scene was because the sector is “increasingly crowded and uneconomical”.

High input cost inflation that has hit everything from jobs to food and drink to energy over the past year is now leading to another round of shutdowns.

In the year to April, food and drink inflation stood at 19.1%, well above the headline inflation rate of 8.7% according to the Office for National Statistics.

Overall, like-for-like sales at British restaurants were up 2.5% in March, compared with a year earlier, according to CGA, but Martin said this headline figure masked how “mainstream, family-led businesses” were taking “a more serious blow” with declining consumer confidence.

The upshot is that for a single restaurant site with a full-service menu to break even nowadays, it needs to earn more than £30,000 a week, Osmond estimated – which he argued was “basically impractical” for those who found outside the selected locations. Other options are for chains to move away from table service to save on labor costs, as chicken chain Nando’s has done, or shrink the menu to focus on one staple, but “something’s gotta give,” he added.

Mark Selby, chief executive officer of Mexican restaurant chain Wahaca, which has 13 locations nationwide, predicted that cost pressures would lead to “trimming some fat” in the casual dining sector.

“If quality starts to decline because you’re cutting costs, which some companies have been forced to do to avoid bankruptcy, then it becomes dangerous,” Selby said. “Mediocre always falls out, but if you can keep it innovative and original, then you’ll be fine.”

In what Johnson describes as “a bullish signal” for the sector, Japanese food conglomerate Toridoll is finalizing a deal to acquire Fulham Shore, which owns Franco Manca pizza chain and The Real Greek restaurants, for 93.4 million pounds, with plans to expand into the UK and internationally. “The weak are disappearing but the strong are getting stronger,” Johnson added.