Restructuring in the casual dining sector: what does the future hold?
Restructuring in the recruitment and interim sector
How has the COVID-19 pandemic impacted the sector?
What is the current state of play in the UK casual dining sector?
Some of the government support mechanisms have been helpful, but operators are still accruing liabilities during lockdown. This includes rent for premises, which are either closed or facing substantially reduced operations as a result of pivoting to a take-away model. With this in mind, there is nervousness from businesses over how they are going to bridge the gap between now and reopening later this year. We’ve seen a general shift towards turnover rent – or a hybrid model with an element of fixed costs – combined with a general trend towards shorter leases, or the inclusion of more breaks. Whilst these trends help to ensure that the tenant’s rent flexes with activity levels and allows an easier exit from underperforming sites, it can mean that for those sites performing well on short tenancies, the tenant’s negotiation position will be weaker on renewal. However, mergers and acquisitions (M&A) continue across the sector and there have been successful rescues from distress, which provides reason to be optimistic about its future.
Most restaurants have had to close their doors and furlough staff, and so we’ve seen lots of operators diversifying their offering by providing takeaways or home-cooking kits. This shift suited a lot of brands that already had central kitchens serving multiple sites, and there has been a growing trend towards dark or virtual kitchens – operating a kitchen location without a dining room – through to multi-brand dark kitchens, and dark kitchens owned by food delivery aggregators. Lockdown has also helped accelerate the transfer of power between restaurants and delivery services – presenting challenges for the former. The three main delivery companies – Deliveroo, Just Eat and UberEats – typically charge restaurants between 14-30 per cent of the order total. A recent independent analysis estimated that the three main takeaway ordering platforms secured more than £1 billion in annual fees from UK restaurants. For smaller independents, this margin loss is unsustainable and is leading some to move back to running their own delivery models. However, businesses face the challenge that their customers might remain with big aggregator platforms, and they could miss out on business as a result. There was a mixed view from the sector on the ‘Eat Out to Help Out’ scheme, which enabled operators to offer discounted meals on Mondays, Tuesdays and Wednesdays during August 2020. While this gave the trade a big cash boost, it was also operationally disruptive. Some restaurants found it simply shifted trade from weekend to midweek, causing staffing issues, and most may have preferred a smaller discount spread over more days – a decision that would have diluted the Government’s policy to shift behaviours. A positive that we can take from the last year is that it has encouraged chains to restructure and reshape their portfolios, addressing sites that were struggling pre-COVID.
Mergers and acquisitions (M&A) continue across the sector and there have been successful rescues from distress, which provides reason to be optimistic about its future. Phil Reynolds Restructuring Advisory
Lockdown has also helped accelerate the transfer of power between restaurants and delivery services. Raj Mittal Restructuring Advisory
Notes
* 1 Saker-Clark, H., 2021. Almost 30,000 jobs lost in hospitality sector in 2020. [online] The Independent. Available at: <https://www.independent.co.uk/news/ business/news/covid-job-losses-hospitality-restaurants-b1781655.html> [Accessed 24 March 2021]. * 2 Kubik, P., 2019. Restaurant insolvencies jump 25% in the last year alone. [online] UHY Hacker Young. Available at: <https://www.uhy-uk.com/insights/restaurant- insolvencies-jump-25-last-year-alone> [Accessed 24 March 2021].
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