Article by Douglas Lambie, Licensed & Leisure Associate at Ryden
There has been a lot of press coverage recently about the demise of several restaurant brands throughout the UK. Rightly so, as social distancing has arguably had a more significant impact on city centre corporate branded restaurants than in many other sectors of the hospitality industry.
Irrespective of whether a brand has outlets located throughout the UK (whether in Glasgow, Birmingham or Plymouth, etc.), the menu will be similar in each venue, as will the style of fit out. The operation is relatively inflexible, as the attraction of a particular brand to customers, is that they will know the menu, and be comfortable eating in surroundings that they are familiar with.
Even although some food supplies may be sourced locally, typical gross profit margins do not vary significantly between the different venues across a typical branded estate. Similarly, operational costs, particularly wage costs as a percentage of turnover, will also remain relatively constant. It is the level of turnover and number of "cover turns" per week, which will have the greatest impact on anticipated profit.
With social distancing in place, branded restaurants are having to operate at reduced capacity resulting in lower turnover. A typical corporate branded operation does not have the flexibility to change the menu or raise prices and as a result, cannot shift gross profit margins upwards. On a reduced capacity and lower turnover, operational costs as a percentage of turnover will increase substantially. In many cases, the rent paid for a city centre location, which would have previously been affordable on high turnover, becomes unsustainable.
Rough waters ahead and no easy answer to current problems.