New data: Cost-cutting and restructuring helps keep restaurant industry alive
Bank of England interest rate rises could threaten the UK restaurant sector’s return to profitability, according to national accountancy group, UHY Hacker Young.
The group say the percentage of UK restaurant companies turning a profit has more than doubled from 35 per cent to 78 per cent in the past year, but recent rate increases could hijack the gains.
At the end of June, the Monetary Policy Committee hoisted rates up to five per cent, a 50 basis point hike up to the the highest level since 2008.
The rise in interest rates may increase borrowing costs for restaurant companies, impacting their financial stability and recovery.
The return of the UK restaurant sector to profitability after the difficulties of the Covid-19 pandemic has been aided by “dramatic” restructurings and “radical” cost-cutting measures, such as the closure of unprofitable branches, staff cuts, and reduced opening hours.
Partner at UHY Hacker Young says, Peter Kubik, said that despite challenges faced by UK restaurants in recent years, “the majority have done exceptionally well to generate a profit in 2023.”
He added that the sector is not yet in the clear as it “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,” Kubik explained.
UHY Hacker Young’s study was based on the UK’s top 100 restaurant companies.
It cohe sector has also seen the end of many government support schemes such as the Energy Bill Relief Scheme, which provided £18bn to businesses to help with soaring costs.