UK Restaurant Companies Double Profitability

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The proportion of profitable companies among the UK’s top 100 restaurant firms has seen a marked increase over the past year, according to a study by national accountancy group UHY Hacker Young. The report reveals that the profitability rate has surged from 35% to 78%.

Despite this encouraging development, the study warns of potential risks looming on the horizon. The Bank of England’s recent sequence of interest rate hikes might threaten the restaurant sector’s renewed profitability, says UHY Hacker Young.

A wave of significant restructuring since the onset of the COVID pandemic has played a key role in driving these restaurant companies back into the black. Measures have included closing underperforming branches, reducing staff levels, and implementing an array of cost-cutting strategies. Among the latter, businesses have cut opening hours to save on utility bills and staff costs, streamlined their menus to cut down on food expenses, and in some cases, switched to more affordable food suppliers.

Many of the UK’s Top 100 restaurant groups have also taken proactive steps to enhance their revenue. In response to the ongoing cost-of-living crisis, several UK restaurants have launched budget-friendly menu options, catering to customer seeking more bang for their buck. Restaurants have also fast-tracked the introduction of sustainable and vegan food choices, in line with rising consumer demand for environmentally-friendly dining. This move towards plant-based alternatives for meat or dairy dishes not only caters to this shift in customer preferences but also offers potentially higher profit margins for the restaurants.

Peter Kubik, Partner at UHY Hacker Young says, “Given the challenges faced by UK restaurants over the last few years, the majority have done exceptionally well to generate a profit in 2023. However, the sector still faces an exceptional tough trading environment caused by high inflation and the rising cost of debt.”

“It will be a delicate balancing act to implement cost cutting measures while also providing a service good enough to attract and retain customers. Some restaurant groups are exploring if they can offer more affordable food and drink options to attract customers affected by the cost-of-living crisis. However, this would lower profit margins.”

Labour shortages are also a concern for the sector. One in nine UK hospitality jobs were vacant in 2022 and as a result, hospitality companies had to pay workers 9% more last year to attract new staff says UHY Hacker Young..

They also point out that the increase in profitability may have been partly responsible for a recovery in M&A deals in the hospitality sector in the UK. The number of deals within the UK’s hospitality sector reached a five-year high of 186 in 2022, after company valuations had fallen sharply during the pandemic.

 

Category: News, Restaurant
Tags: Peter Kubik, Top 100 restaurant groups, UHY Hacker Young, UK Restaurant Companies