A window on the market

Despite widespread visions of a collapse, London’s restaurants are defying the recession according to eating-out guide Harden’s. Just 64 failed in the past 12 months – the fewest since 2000. In addition the number of openings in central London was up 8% to 121, painting the picture of an eating-out scene if not booming, then certainly alive and kicking. The figures, released late last week, prompted much initial head scratching, and begged the question: why have not more of these type of businesses gone bust yet? Analysts believe a number of factors are at work. “Where the doomsayers have got it wrong is they haven’t understood the impact of tracker mortgages, and how much better off many people have been since interest rates moved down,” says Greg Feehely of Altium. “We could see this benefit lasting well into next year.” There has also been a record number of people holidaying at home – the so-called “staycation” – plus an upturn in overseas visitors from the eurozone, driven to the UK by the favourable exchange rate against sterling. London has been awash with tourists. Another key point is that the Harden’s guide focuses on 1,500 central London restaurants and let’s face it, central London does not equal the rest of the UK – most operators think of it as a unique market – an offshore island. To think all is well would clearly be wrong. Figures from BDO Stoy Hayward published earlier this year showed that restaurant closures rose 9% to 623 in 2008. In addition BDO says that in 2008 the wider leisure sector accounted for 5.6% of all business failures. This year, the figure is likely to be 7%. Next year, it could go as high as 9%. Separate figures from PwC showed that the number of restaurant insolvencies rose 30% during the second quarter of this year to 138, compared with the same period in 2008. However, this was less than the 186 recorded in the first quarter. But it means that in total in the first six months 324 businesses went bust – almost double the 164 of two years ago. Although there have been high-profile collapses, the pain in the market must be felt most keenly by independent operators, who would appear to have fewer options when it comes to navigating input price rises, general cost cutting and driving footfall. We will start to get a feel for how multiple-site groups are faring this week when the Restaurant Group and Spirit-operator Punch Taverns both release pre-close trading statements. Their figures mark the start of a sustained period of trading news-flow from listed groups in the eating and drinking-out market. A host of companies including Whitbread, Greene King, Capital Pub Company and JD Wetherspoon will announce figures in early September. They will be followed by Clapham House Group, Mitchells & Butlers, Enterprise Inns, Luminar and Marston’s later in the month. As we leave behind the holiday season one thing that most operators seem acutely conscious of is the fast-approaching anniversary of the collapse of Lehman Brothers, the US investment bank, when the world changed. As one operator puts it: “The week after the bank holiday was when it all kicked off: people came back from holidays but didn’t come out – they stayed behind their desks quaking with fear.” Most are expecting a very favourable last quarter, in like-for-like sales terms, against the soft comparables of last year, when the consumer was caught in the headlights of Lehman. That said, the majority of operators I spoke to last week remain cautious. There is the prospect of interest rates eventually returning to more normal levels, and the forthcoming (mindlessly-timed) VAT increase in January. And everyone knows that sooner or later public spending must come down and personal taxation go up. All of it has the potential to significantly impact discretionary spending. Most acknowledge that things are not about to get easier just yet.