According to new research one in three of the UK's top 100 restaurant chains are NOT PROFITABLE.
Increasing numbers of restaurant chains are losing the battle against higher costs and increased competition.
A boom in casual dining a few years ago, has given way to dog-eat-dog competition as the now crowded sector faces higher costs and faltering consumer appetites.
The principal reason so many chains are struggling on the high street is the market is saturated, and the same goes for mid-market chains.
Pretty much every town has a decent place to eat whereas ten years ago they didn't.
why are Restaurant Chains finding times so tough?
The fall in sterling since the Brixit vote has pushed up the cost of imported ingredients. Add rising employment costs add increasing business rates and high debt ratios and stir. The result is an increase in merger and acquisition activity. The consequences some merged restaurant chains can find they have business units in the wrong locations. The result, closures.
Will changing demographics lead to less eating out?
There are certain fashionable city centre places, where if you turn up at the wrong time you can still end up queuing for a table. For example, cafes offering highly 'Instagramable' weekend brunches.
There is still a buoyant market for places that get the offer right however consumer spending power, is being squeezed by low wage growth and higher inflation. Consumers are reining in their discretionary spend by switching to home delivered meals, or ready-meals like Marks and Spencer's successful ‘Dine In for Two for £10.’
Some restaurant chains have responded with ever more aggressive discounting; Deloitte found 38% of visits involve a deal or special offer.
Will this change consumers indefinitely?
In the long-term people will continue to eat out and as disposable income rises so will consume spend but for now people are likely to value experiences more than they have in the past for example Mad Rex restaurant & Virtual Reality Lounge. The implication is, businesses need to stay very relevant.
Independents have an advantage over chains in so far as these businesses can respond very quickly to changing consumer desires for different experiences. For example seasonal or daily menus. Restaurant chains have an advantage in so far as the customer experience is predictable. However, for the moment independents appear to have an edge. They tend to offer 'Instagramable' experiences.
What you can do?
For the immediate future restaurants owners should focus on customer experience, reducing their margins, improving productivity and invest in technology. For example pre-ordering, mobile payments and customisable menus.
How do you improve profitability?
The solution is acquisition and dissemination of knowledge to the right people at the right time.
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