Do chain restaurants need to rethink their business model?

The  Staff Canteen

The Staff Canteen

Editor 8th June 2018

Chain restaurants are closing sites throughout the UK but why and how can they overcome this?

The number of restaurants chains closing branches is on the increase as oversaturation in the market drives profits down. Additional pressure from increased running costs has also had an adverse effect on the market as chains opt to close branches. So, why are so many chain restaurants under threat and do they need to rethink their business model?

Jamie Oliver cooking (Scandic Hotels via Wiki Commons)
Jamie Oliver

Why are so many chain restaurants closing?

Jamie’s Italian has been one of those hit the hardest following an announcement that they would be closing 12 of its 37 branches to ensure the brand remained in "good shape for the future".

Despite Jamie Oliver pumping £3 million of his own money back into the Italian chain in December, court documents have revealed that his chain of restaurants has accrued debts of £71.5 million which is broken down into £30.2 million for overdrafts and loans and £41.3 million owed to HMRC, landlords, suppliers and other creditors while staff were owed £2.2 million. A spokeswoman for the celebrity chef addressed the documents, saying the £71.5 million figure ‘paints a distorted picture.’

Rising costs and ‘intense competition’ have been blamed for the closure of six of Jamie’s Italian branches in early 2017. The remaining open sites are reportedly bringing in extra customers with their cut-price lunch offers.

Court documents suggest that under-investment, complex menus and ill-judged branch openings have all contributed to the decrease in profits.

Which other restaurant chains are closing?

Byron Burgers have suffered similarly after having to be rescued out in January after having expanded too quickly. They will reportedly be closing up to 20 of their locations, which accounts for nearly a third of their branches.

Carluccio’s have revealed that they are closing nearly a third of its UK restaurants putting hundreds of jobs at risk and earlier this year Prezzo said it was closing 94 of its stores. 

The Restaurant Group, one of the UK’s biggest players in the casual dining market, operates over 500 restaurants and pubs including Frankie and Benny’s, Chiquito, Coast to Coast, Garfunkel’s, Firejacks, Brunning & Price and Joe’s Kitchen have reported a decline in sales and have seen closures across sites for some of their brands.

The increasing cost of rent on the high street and increases to the National Living Wage are all contributing to the current situation affecting chain restaurants.

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Chain restaurants are under threat

Who are restaurant chains competing with?

Competition from delivery companies like Deliveroo has also forced the hands of restaurants to curtail costs as customers opt for cheaper alternatives. Companies like Deliveroo do not charge the customer for “eating in” costs who are instead charged with a significantly smaller delivery charge. This enables them to offer customers cut-slash prices that restaurants are struggling to compete with.

Independent outlets and small chains are leading the way forward by catering to markets with innovative, new menus and diet alternatives.

Veganism and gluten-free options have proven increasingly popular over the years. The restaurants succeeding in the space at the moment are the ones adopting relevant trends like these into their menus.

Richard Vines

In a Radio 4 report, chief food critic at Bloomberg Richard Vines remarked: “I think there are too many chains that are not very good. Chasing a limited market - mass market but still it’s finite - on very narrow margins and as soon as their profits are squeezed they’re in trouble because they can’t put up the prices.”

He continued: “There’s also a problem that they try and economise by buying cheaper ingredients. The failure of these midpriced restaurant chains is being referred to as “the murder of the middle”.

Diners are prepared to pay for inexpensive treats as well as the rare expensive meal out to celebrate for a special occasion but are looking for an experience that - more often than not – these restaurants cannot deliver on.

Richard recalled: “I travelled to the first Jamie’s Italian in Oxford when they opened. It was like going to a great restaurant. It got fantastic reviews. The food was amazing. Last few years, standards had dropped. It just felt like an economy chain and you know it’s not somewhere you would want to go and eat, you could eat better at home.”

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Eating out

How can chain restaurants succeed in the current market?

The drop in standard in some of these chains comes from increased pressure to combat rising running costs. Wages rose for workers in 2016 after the success of the Living Wage Campaign. Many companies, in addition, adopted the National Living Wage, which is calculated in relation to the cost of living. Business rates, rent and overheads all add to the cost of running a restaurant.

Locations in London are expensive to operate in an oversaturation leads to further difficulty in balancing the books. The CGA found that there were more than 27,000 restaurants open in the UK in 2017.

However, there is some success for restaurateurs outside of London in places like Liverpool, Manchester, Leeds and Cardiff with particular growth in market towns.

By Tamara Hough

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The  Staff Canteen

The Staff Canteen

Editor 8th June 2018

Do chain restaurants need to rethink their business model?