Source: Pexels

Restaurants have been hit by rising costs including wages and raw materials, as well as lower sales

Top story

The biggest 100 UK restaurant groups have seen profits drop in the past 12 months as they suffered from higher overheads and plunging sales.

Overall the 100 companies, ranked by revenue, reported a £93m loss in the year ended 30 September, down from a £37m profit a year ago, research by UHY Hacker Young showed.

Restaurants have come under pressure from rising costs, including wages and raw materials as well as falling sales, with the average household spending £967.20 on dining out every year – £22 lower than in 2018, according to the ONS.

Furthermore, the cost of imported goods has risen due to the weaker pound following the Brexit vote in 2016.

“The restaurant sector in the UK is still suffering from the sharp chop in profitability earlier this year,” said Peter Kubik, partner at UHY Hacker Young.

The rising popularity of home delivery services such as Just Eat, Deliveroo and Uber Eats has also been described as a “mixed blessing” for restaurants.

Though providing an additional sales channel, take-out reduced the number of in-person visits, which are more profitable due to additional purchases of drinks – restaurants’ highest-margin products.

Following the demise of TV chef Jamie Oliver’s popular restaurant chain Jamie’s Italian, further players – including Chiquito, Frankie & Benny’s and Giraffe – are now closing loss-making branches in order to restructure their debts.

Others turned to shareholders to raise capital, though many have found the “patience for putting in more money has run out”, Kubik added.

“There are now few restaurant chains that aren’t either considering a strategic restructuring or a reduction of their branch networks,” he said.

“Restaurants are also taking action at a micro level such as simplifying their menus to reduce waste, cut costs and focus on their most popular dishes.

“However, despite all the bad news, there is still opportunity in the market for restaurants that can meet a clear consumer demand. There are plenty of big success stories in the market – it’s just more challenging than ever to maintain success as tastes and budgets change.”

Morning update

Troubled South African retail group and Poundland owner Steinhoff has continued its asset sell-off efforts, with news this morning it has sold its Australian general merchandise arm of Greenlit Brands to Allegro Funds.

The GM brands included in this transaction are Best & Less, Harris Scarfe, Postie (NZ) and Debenhams Australia, which include 322 stores and over 6,100 employees

Louis du Preez, Steinhoff Group CEO said “The sale of Greenlit Brands General Merchandise division is a further step in Steinhoff’s programme of planned divestments, as we continue with our announced strategy of simplifying the group’s portfolio and deleveraging our balance sheet. We wish Allegro and the General Merchandise management team every success with their future plans.”

The update follows Friday’s news that Steinhoff has agreed to sell its Harveys and Bensons for Beds retail businesses, which have been owned by Steinhoff since 2005 to Alteri Investors. The businesses, which also have four manufacturing sites, as well as five distribution centres in the UK, employ more than 2,700 people and have an annual turnover of over £500m.

On the markets this morning, the FTSE 100 has opened flat at 7,303pts.

Early risers include FeverTree (FEVR), up 2.9% to 1,899p, Marks & Spencer (MKS), iup 2.5% to 182p and Imperial Brands (IMB), up 1.6% to 1,759.2p.

Fallers so far today include PayPoint, down 1.2% to 922p, Unilever (ULVR), down 0.9% to 4,525.5p and DS Smith (SMDS), down 0.7% to 385.3p.

This week in the City

A quiet week is headlined by Naked Wines’ (WINE) first half year results since the summer sale of the Majestic retail arm to US private equity firm Fortress. Naked will post its interim results on Thursday.

Elsewhere, Weetabix owner and US cereal giant Post Holdings will release its full year figures on Thursday.

Finsbury Food Group will host its AGM on Wendesday and Hotel Chocolat’s (HOTC) AGM is on Thursday.

In the US, Hain Celestial – which is in exclusive talks with private equity group PAI Partners over the sale of its UK Hain Daniels business – will have its AGM tomorrow.

In economic news, the CBI Industrial Trends an Distributive Trades Surveys are out on Wednesday and Friday respectively.