March and April bring the end of the financial year and tax year for many companies, but this April will also bring more costs increases for the pub and restaurant industry.
The news in the first few months of 2018 has been rife with numerous restaurant closures. Prezzo has announced the closure of 94 of its restaurants. This follows closures of other well-known chains such as Byron, Strada and Jamie’s Italian. Jamie’s Italian in particular, in keeping some of the premises open, has had to negotiate rent cuts and a change in frequency of rent payments. This kind of scenario means that landlords will also suffer if they decide to keep a reputable brand in their premises in the hope that business will pick up and rent increases can be negotiated in the future.
It is not just well-known chains but also high profile restaurants in London that are closing. An online log is being kept by Eater London of the ongoing closures showing the volume there has been in such a short space of time.
Rents are continuing to increase partly as a result of Brexit. Brexit has caused the pound to weaken which is creating issues with many ingredients being sourced from overseas. Brexit has also meant that some European staff are leaving, increasing recruitment costs. Business rates are also due to increase which is a major expense for pubs and restaurants.
The national minimum wage is set to rise again in April. Pubs and restaurants will have to find ways to alleviate these growing costs as another rise is expected for next April.
The sugar tax, due to be brought in April to help tackle obesity in the UK, also looms and is a concern to those in the food and drink industry. The outspoken owner of Wetherspoons has not been shy in voicing his concerns. The company believes it will increase their tax bill by £3 million. We have already seen the company increase its prices for the third time in the space of a year. There may be more once the impact of the sugar tax starts to become clear. Suppliers and food distributors will have to adjust their pricing strategy and most likely increase prices. There will be a noticeable rise in the cost of fizzy drinks for example.
However, it is not all doom and gloom. The British public is continuing to eat out. Statistics show that sales increased by 0.2% in February compared to February 2017 and the frequency of eating out has not dropped. Pubs fared better than restaurants with their growth being 4.3% compared to 3.8% for restaurants. That said, companies need to look at strategies to mitigate the increasing costs. Where possible, negotiating lower rents at the outset will have a major effect with this being one of the largest expenses.