Despite the sector’s efforts to cut debt, levels for the top 30 restaurant companies ranked by revenue increased over in the last year from £2.96bn in 2021 to 3.03bn in 2022.
“The restaurant sector’s debt levels ought to be coming down,” says Peter Kubik, partner at UHY Hacker Young.
“It’s worrying that it’s not already, given the cost of borrowing at present.
“A lot of restaurant groups had worked extremely hard to restructure their debts and shed costs over recent years. These figures suggest that the problem hasn’t been fixed yet.”
UHY Hacker Young notes that restaurant companies had built up substantial debts during the last decade as the sector expanded rapidly. With profits in the sector often dependent on scaling chains quickly, many restaurant groups became over-leveraged.
Additionally, many restaurant companies were also forced to take on further debt during the Covid-19 pandemic through the Government's Bounce Back and Business Interruption loan schemes.
The sharp rise in interest rates has then substantially added to the strain of servicing that debt over the last two years, with the rising cost of living further compounding the pressure on restaurant operators.
According to a recent report from Barclays, spending in restaurants fell by 10.3% in October 2023, the ninth consecutive monthly decrease.
“High interest rates and lack of consumer spending are leaving some restaurant chains in a precarious position,” Kubik continues.
“If the cost-of-living crisis persists much longer, more restaurants will start to struggle with a lack of cash flow. That’s going to lead to more of them going under.”