HAVE CHAINS HAD THEIR CHIPS?

Stricken sec­tor has re­struc­tur­ing ex­perts work­ing over­time, but some buy­out firms are still hun­gry for a juicy bar­gain, writes Han­nah Ut­t­ley

The Daily Telegraph - Business - - Front Page -

Restau­rants re­open­ing their doors last week­end did so against a grim back­drop given that “Su­per Satur­day” came just days af­ter the owner of Bella Italia and Cafe Rouge laid off 1,900 work­ers as it col­lapsed into ad­min­is­tra­tion and closed 91 sites.

Ca­sual Din­ing Group, which also owns Las Igua­nas, is one in a long line of ca­sual din­ing op­er­a­tors that have been forced to call in re­struc­tur­ing ex­perts in re­cent weeks as the pan­demic de­liv­ers a knock­out blow to the al­ready trou­bled sec­tor.

Burger chain By­ron, Prezzo and the Az­zurri Group, which owns Ask and Zizzi, are among the restau­rants which have either put them­selves up for sale or are ex­plor­ing a ma­jor over­haul of their es­tates.

Car­luc­cio’s and Chiq­uito, owned by The Restau­rant Group, have al­ready fallen into ad­min­is­tra­tion, with the for­mer snapped up for £3.4m by

Gi­raffe owner Boparan in May, re­sult­ing in the loss of 1,000 jobs.

“It’s a new par­a­digm in terms of the level of restau­rant work avail­able for re­struc­tur­ing prac­ti­tion­ers,” says Will Wright, a part­ner at KPMG and head of its re­gional re­struc­tur­ing team. “I’m not sure there are many chains out there that have not got peo­ple like us around them at the mo­ment.”

The strug­gles ex­pe­ri­enced by the ca­sual din­ing sec­tor dur­ing the pan­demic are by no means a new phe­nom­e­non.

Just over 1,400 restau­rants col­lapsed into in­sol­vency in the 2018-19 fi­nan­cial year, ac­cord­ing to ac­coun­tants UHY Hacker Young, a quar­ter more than the pre­vi­ous 12 months. Chains such as Jamie’s Ital­ian were among those that dis­ap­peared from Bri­tain’s high streets last year as a com­bi­na­tion of steep rents, crip­pling busi­ness rates bills and higher staffing costs made it im­pos­si­ble to keep trad­ing prof­itably. Mean­while, over­am­bi­tious ex­pan­sion in re­cent decades has seen sup­ply far out­strip de­mand, while years of own­er­ship un­der pri­vate eq­uity have left many firms laden with debt.

In­sol­ven­cies have slowed in re­cent months due to the Gov­ern­ment’s mora­to­rium on wind­ing-up pe­ti­tions un­til Sept 30 and a tem­po­rary ban on busi­ness evic­tions.

There were 49 restau­rant in­sol­ven­cies in May com­pared with 119 in the same month a year ear­lier, ac­cord­ing to of­fi­cial data. UHY Hacker

Young ex­pects this num­ber to in­crease as gov­ern­ment sup­port, such as the fur­lough scheme for staff, begins to ta­per off.

Chris­tian Mole, EY’s head of hos­pi­tal­ity for the UK and Ire­land, says the pan­demic has forced many dis­tressed firms into mak­ing dif­fi­cult de­ci­sions they may have pre­vi­ously put off.

“The thing to say about the ca­sual din­ing sec­tor is that un­like a lot of hos­pi­tal­ity, it was a sec­tor that was strug­gling way be­fore Covid any­way,” he says. “In a sim­i­lar way that you could ar­gue that the pan­demic has ac­cel­er­ated a move within re­tail from bricks and mor­tar to the in­ter­net – it’s ac­cel­er­at­ing the fall­out that was al­ways likely to hap­pen in the ca­sual din­ing sec­tor.

“I think the mood has moved to one of prag­ma­tism. Peo­ple are now quite fo­cused on work­ing out what they need to do.”

The mass clo­sure of out­lets is one of the inevitable out­comes of Covid-19’s im­pact on the restau­rant in­dus­try.

Ex­perts pre­dict the sec­tor will lose up to a quar­ter of its ca­pac­ity over the next 12 to 18 months.

Ne­go­ti­a­tions over rental deals with land­lords will be vi­tal in help­ing many com­pa­nies stay afloat over the com­ing months.

Chris­tine Zhou, a leisure an­a­lyst at RBC Cap­i­tal Mar­kets, says there could be a shift to­wards turnover-based rents that would ul­ti­mately tip the balance in favour of ten­ants.

“What we’re hear­ing from some of the com­pa­nies hop­ing to get through the cri­sis is that the whole re­la­tion­ship be­tween ten­ants and land­lords is go­ing to have to be rethought as a re­sult of this,” she says.

“Com­ing out of this cri­sis, for those that do re­main, this could be seen as an op­por­tu­nity, par­tic­u­larly given that we could get a big sup­ply clearout on the high street and land­lords will be look­ing for ten­ants to fill those sites.”

Ralph Find­lay, chief ex­ec­u­tive of pub chain Marston’s, which makes 40pc of its sales from food, says pubs could be among those to pick up any of the de­mand left from the clo­sure of ca­sual din­ing sites.

“The last few years have been char­ac­terised by ex­cess sup­ply com­ing into the UK eat­ing out and drink­ing out mar­ket and that has mainly come from ca­sual din­ing op­er­a­tions. It’s been an un­prece­dented pe­riod of growth in out­lets and you are cer­tainly see­ing that un­wind at a pace,” Find­lay says.

“That will not be good at all for the peo­ple who work in those busi­nesses, but if you take the health of the sec­tor

‘The mood has moved to one of prag­ma­tism. Peo­ple are now fo­cused on work­ing out what they need to do’

‘If there is a wave of re­struc­tur­ings in the sec­tor, it could al­low it to re­cover for the medium term’

and those that are still op­er­at­ing then it prob­a­bly is a pos­i­tive for those busi­nesses.”

KPMG’s Wright agrees: “There is a sort of Dar­winian as­pect to this which may mean if there’s a wave of re­struc­tur­ings in the sec­tor, it could ul­ti­mately al­low it to re­cover for the medium term.”

Trends re­lated to the use of tech­nol­ogy are also ex­pected to ac­cel­er­ate, while menus will be pared back at least in the short term to sim­plify op­er­a­tions and cut down on cost and food wastage.

“Even be­fore Covid, you were see­ing cer­tain chains ex­per­i­ment­ing with apps where you can or­der and pay at the table. That will be­come an in­her­ent fea­ture of the sec­tor,” Mole highlights.

“That will al­low restau­rants to op­er­ate a more flex­i­ble labour model and keep costs down a bit.”

Ex­perts dis­agree that coro­n­avirus will mark the death knell for the ca­sual din­ing model, with a num­ber of pri­vate eq­uity suit­ors wait­ing in the wings with an ap­petite to feast out on the sec­tor.

US hedge fund El­liott is said to be among those con­sid­er­ing a swoop for Ca­sual Din­ing Group, while oth­ers are mulling bids for parts of the busi­ness.

“There is still a la­tent de­mand and ul­ti­mately the sec­tor will take a dif­fer­ent form,” Wright adds. “The chain restau­rant is not dead, we will just see fewer in­vestors in it.”

6,600 Num­ber of ca­sual din­ing out­lets cur­rently in the UK 25pc Sites ex­pected to close over next 12 to 18 months 1,900 Jobs lost at Bella Italia owner Ca­sual Din­ing Group this month £3.4m Sum paid by Boparan to ac­quire Car­luc­cio’s out of ad­min­is­tra­tion £73.4bn Pre­dicted cost of coro­n­avirus to the hos­pi­tal­ity sec­tor in 2020 A closed By­ron Burger restau­rant in Char­ing Cross Road, London. The chain is among the ca­sual din­ing com­pa­nies that have been forced to ex­plore a ma­jor over­haul

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