High costs and over-supply hit sector
One restaurant failing every three days in record year for closures
Dark days: the former home of Valvona & Crolla in Edinburgh
One restaurant has shut its doors every three days across Scotland in a record year for closures, partly because of the current fashion for fast home deliveries.
The number going bust increased by 86.3% from 73 in 2017 to 136 in 2018 as consumers also tightened their belts and the sector suffered from high rent and rates, voucher discounting and an over-supply of outlets.
Analysis of Insolvency Service data by accountants and business advisers French Duncan found that restaurant failures accounted for 13.9% of all corporate failures in Scotland last year.
The data has emerged as the St James Centre under construction in Edinburgh plans to add a further 30 eating and drinking establishments to the city’s supply. One local restaurant, Valvona & Crolla in Multrees Walk was forced to close last February because of increased competition in nearby St Andrew Square, and the building work at St James which reduced footfall in Multrees Walk.
Other notable closures include Nick Nairn’s pizza restaurant in Aberdeen where the downturn in the oil industry hit the sector. No 8 Lister Square in Quartermile, Edinburgh, Ashton’s Bar and Kitchen in Glasgow and Macks cocktail bar and grill in Nairn also shut.
UK chains Gaucho, burger group Byron, Jamie’s Italian restaurants, the Strada Italian restaurant chain, Carluccio’s, and Prezzo have also suffered.
Other companies, such as the Casual Dining Group, which owns Bella Italia and Café Rouge, saw their losses increase to £60.5 million despite increased revenues of £329m.
Eileen Blackburn, head of restructuring and debt advisory at the firm, said: “These figures once again highlight the difficulties the restaurant sector is facing. A near doubling of the number of restaurant failures in one year is a quite alarming reflection of the state of the sector.
“This is undoubtedly due to the continuing problems faced by the high street which has seen restaurants and retailers hit badly over the last year. The issues facing the high street continue with high business rates and inflexible landlords contributing greatly to the problem.
“Local councils and landlords must accept that they cannot continue to milk high street businesses for cash as too often the result are more closures and more boarded up outlets.”
Ms Blackburn continued: “Of greater concern is that these figures are likely to be the tip of the iceberg as far as restaurant closures are concerned.
“Far more restaurants close without entering into a formal insolvency process so the numbers struggling on a day to day basis will be huge. Opening a restaurant has always been difficult but there are greater complications with high rents, high rates, increased staff costs, and, for those importing ingredients, higher supply costs.”
She added that the growth in the sector has seen an over-supply in some areas.
“There is also an issue with over-capacity in the sector, and rising costs have resulted in many restaurants simply being unable to continue to operate.
“Some Scottish operators may also be operating on a model that is now outmoded. The discount voucher market which can be a useful tool in the short term also lowers revenue as consumers shop around for the next deal. Vouchers can lead to a vicious circle of voucher dependence, lower income, and reduced profitability and, ultimately, closure.
“Many restaurants are also being hit by the growth of delivery services which has opened up an enormous new market from food outlets that never delivered before giving consumers the option of saving some money by eating takeaways at home.
“Equally, the pub food market continues to grow both in the form of successful chains and individual outlets allowing for an evening out at less cost than most restaurants can manage.
“It is clear that the restaurant market is experiencing an extremely difficult time. There are so many issues of higher costs, lower demand, and council and landlord inflexibility that it is a brave person that enters the market at the moment.
“Unfortunately, these very high figures may only be the beginning of continued difficulties for the sector in the coming years.”