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February 24, 2012

Restaurant insolvencies hit three-year high

Restaurant insolvencies jumped by nearly a third in the fourth quarter of last year, the highest level of closures since early 2009, new figures have revealed.

Research by accountancy firm Wilkins Kennedy highlighted that the number of restaurants closing down rose by 31% to 194 during the last three months of 2011, compared with 148 the previous year.

The rise was largely due to consumers cutting their spend on eating out, Wilkins Kennedy said, while restaurants were reluctant to pass on increasing costs to cash-strapped customers, such as VAT and minimum wage increases, and higher food prices.

“When income is falling, businesses can normally bail themselves out by cost cutting – but restaurants have a very high percentage of their costs fixed by the property leases that they have to sign,” said Williams Kennedy partner Anthony Cork.

“Under the terms of most UK restaurant leases, rents can only ever go up – even if the real rental value of that restaurant has plunged. That means that falling turnover can quickly plunge a restaurant into loss,” he added.

Cost cutting by public sector and financial service firms over the Christmas period – traditionally one of the busiest times of the year – had also taken their toll on the restaurant sector, according to Cork, who said entertainment budgets were still “well below” their pre-recession levels and likely to remain so for some time.

Paula Black, owner of Brighton-based small restaurant Blenio Bistro, said a loyal clientele had helped to boost trade, but spiralling food prices remained a concern. “Our suppliers are charging us 25%-30% more than they were two years ago, but we can’t pass that on to customers because it will kill trade,” she said.

“Instead of raising our prices, we focus on getting lots of repeat business,” added Black. “We do an under-£10 section on our menu, we offer carafe wines to keep prices low, and we do fish and chips nights during the week for those who don’t want to cook at home, but are on a budget. It’s a constant struggle but you have to keep adapting to survive.”