The UK’s top 100 restaurant groups have reported an 80% decline in total pre-tax profits to £37m, compared to £194m a year ago, according to a study by national accountancy group UHY Hacker Young.
Challenges such as higher staff costs, rising business rates and utility costs faced by the casual dining sector were the contributing factors. The short-term cost of terminating employee contracts and exiting tenancy agreements also played a role in the decline.
Restaurant chains have also experienced a decline in profits due to business restructuring including the cost of closing loss-making locations over the past two years.
The study noted that almost 37 of the top 100 restaurant groups are currently running in losses.
UHY Hacker Young partner Peter Kubik said: “The downward spiral in profits of restaurant groups reflects the severe difficulties that continue to impact the sector.
“Despite the long-term benefits, closing down restaurants is often hugely expensive in the short-term. For some struggling restaurant groups that means things will get worse before they get better.
“However, relative success stories such as Wagamama, which opened seven new UK restaurants this year, show that consumer demand for casual dining is still present.
“Similarly, ethically-sourced fast food chain Leon is expanding into Europe. The restaurants that are doing better are those who are innovating by offering their customers something more unique.”