The debt burden of the UK’s top 30 restaurant groups has broken through £3bn for the first time, according to new research by accountancy group UHY Hacker Young.
Despite the sector’s efforts to cut debt levels, debts increased slightly in the last year, from £2.96bn in 2021 to £3.03bn in 2022.
The sharp rise in interest rates has substantially added to the strain of servicing debt, while the rising cost of living has resulted in spending on restaurants decreasing 10.3% in October 2023, according to data from Barclays.
Restaurant groups built up substantial debts during the last decade as the sector expanded rapidly. With profits often dependent on scaling chains quickly, many groups became over-leveraged, according to UHY Hacker Young.
Many groups also added to borrowing during Covid through BBLs and CBILs loans.
Insolvencies of restaurant businesses in the UK rose 44% in the past year, increasing from 1,611 in the year to the end of September 2022 to 2,109 in the following 12 months.
Peter Kubik, partner at UHY Hacker Young, said: “The restaurant sector’s debt levels ought to be coming down. 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.
“High interest rates and lack of consumer spending are leaving some restaurant chains in a precarious position. 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.”
