Has the London restaurant bubble truly burst?

Has the London restaurant bubble truly burst?

Byron Burger, Dock Kitchen, Modern Pantry, Venetia, HKK, L’Autre Pied, Paradise Garage, Embassy East these are a few of the closures London has seen in 2017 as I ask the question has the growth in London’s restaurant gone pop?

London Closures

The year started with restaurateurs Will Beckett and Huw Gott closing Foxlow Stoke Newington which made me stop in my tracks. As a former local I thought a Foxlow in that Neighbourhood couldn’t go wrong, how little did I know.

On closing the Restaurant Director for FoxLow Gary Thomas had the following to say “We tried something and unfortunately, despite great feedback for the food and service, it didn’t work”

When L’Autre Pied closed its doors in September after a decade at the top of London’s restaurant scene owner David Moore had the following to say to Bloomberg “I have never known a more difficult time and I have been in this business for more than 30 years,”

“Young people are not coming over from Europe in the same numbers and that is having a serious impact. There is not a restaurant in London that is fully staffed,” he added.

The Why?

So, what are the things causing London restaurants to close? Here I list what I think are the top 5 factors causing the scene to burst – in no particular order;

  1. Inflation
  2. Living Wage Movement
  3. Restaurant spinoffs vs New Concepts
  4. Brexit
  5. The Consumer

Inflation

This is where only the fittest survive and when landlords decided in April 2017 to get in on the restaurant boom of 2012 or 2015, businesses saw rates increase as high as 50%.

In 2016 the London Mayor Sadiq Khan joined forces with retailers and lobbied the government to request the rumored price increases of 150% at the back end of 2016 been introduced over a longer period to give businesses a chance to cope. In fact, it was the first revaluation in almost a decade and some businesses quickly closed their doors with many small businesses seeing increases hit the 40% mark.

Food inflation has risen by 4% which has seen an everyday item like butter increase in price by 40% and with the weak pound not gaining any confidence mainly due to the cumbersome Brexit process there isn’t going to be any relief anytime soon.

Food costs being one of the two ‘prime costs’ associated with running a hospitality business, any increase on in this can be devastating and put the business in jeopardy.

Living Wage Movement

The Living Wage movement UK isn’t something that is fixed to London or in fact the UK – it’s truly global read this excellent report by Oxfam. The Living wage in London is currently £10.20 per hour which if not supported by companies operating a clear service charge policy will disrupt most models.

I also remember having a Facebook dialogue with a USA chef back in 2015 on the Fightfor$15 movement in the USA. I argued I’m for it and he questioned how I could back up my opinion within my previous business operations, which I could but he questioned the validity – his argument was it could be devastating for small businesses.

From a London restaurant perspective, the business model for restaurants often is low NOP (Net Operating Profit) usually targeted between 8% – 15% and those performing at that and above are considered good or excellent models. Most restaurants, however, achieve a smaller margin typically between 3% – 5%.

Labour is the other ‘prime cost’ and usually stands between 28% – 35% of revenue for most restaurants. Now if it were increased the effect would be crippling to businesses. As the pendulum swings in favor of a ‘Living Wage,’ its impact on restaurant profitability sees restaurants not becoming sustainable thus closing.

Restaurant Spinoffs vs New Concepts

New openings continue to happen but what is more noticeable to me is the increase on roll-outs of established concepts but with a slight twist. Let’s call these ‘Restaurant Spin-offs’ which are happening at all ends of the marketplace and can’t be considered a new phenomenon with St John a true and successful originator here.

What makes a restaurant spin-off more likely or successful than a new concept? Well, it’s all about ‘Trust’. From the consumer, it’s been built usually via the successful or known elder – often referred to as the parent or sibling.

From an investor or investment perspective, the operational variables become known and more controllable – staff is skilled and gain the know-how from the previous outlet. Also, the vision often becomes grander in a way to scale something more familiar than unknown.

Brexit

Simply put what a fucking shit show! Need I say more? Oh, ok then, the uncertainty has been a killer along with the rank stench its left with all those people who you used to have such camaraderie with looking at you pondering to themselves are you a Brixteer or a Remainer? That is a restaurant vibe killer.

 

The Consumer

We all have heard of the millennial consumer and how businesses need to cater to their emerging and changing habits. And at the same time what we’ve forgotten is that how Millennial thinking and habits have a knock-on effect on other consumer groups. Baby Boomers aren’t what they once were – their habits and needs have evolved to the point that they are very active on Social Media and want to lead a ‘Fit Life’.

With the forever evolving habits and needs of the consumer, how can businesses respond so rapidly? Is the Fast Casual business the way to go forward, lower cost model making it more viable? Or is it the rise in the delivery market something restaurateurs should look towards for how the consumer is engaging food businesses?

 

Read more of my blog posts here and how my company can help you here

 

By | 2018-09-29T09:05:28+00:00 December 19th, 2017|Brands, Food, GenX, Hospitality, London, Millennial, Travel, Trends|0 Comments

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