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Food for thought – a revival in the UK restaurant sector in 2021?

12 January 2021 #Food and Restaurants #Real Estate


In recent years the restaurant sector has been struggling due to high business rates and rents, Brexit uncertainty and people generally eating out less.

However, no one expected the shock that 2020 was to unleash on the hospitality industry as a result of COVID-19. According to recent figures from the Centre of Retail Research, the industry saw a 163% increase in restaurant redundancies compared to 2019.

Many restaurants have since made the difficult decision to close their doors for good; in London, even some of the most highly rated restaurants such as The Ledbury, the Dairy and Roux at Parliament Square have chosen permanent closure as their only option.

Despite the doom and gloom the sector continues to show resilience, with those that have adapted and diversified looking set to thrive in the new normal.

So, what have been the key issues and business trends in the restaurant sector over the last year and how will they impact the future?

A chain reaction

2020 continued to see chains being hit hard, with Carluccio’s, Café Rouge and Bella Italia to name but a few going into administration. Several others confirmed they will be closing stores with probably the most publicised being Pret a Manger, Frankie and Benny’s, Pizza Hut, Upper Crust and Pizza Express.

The year ahead is likely to see more chains closing sites with their private equity investors looking to cut their losses where possible. On the positive side this should free up some prime sites for new and emerging concepts in 2021.

Adapt or die.

Ask any restaurant operator what they did well during the pandemic and most of the lucky ones will answer that they quickly adapted their business. Emily Roux of Caractere restaurant commented that she; “didn’t wait for Government guidelines to react” and Mathew Carver of the Cheese Bar commented that he; “made the switch to selling cheese online and doing home deliveries”.

Delivery became a crucial element for closed restaurants in 2020 as well as the emergence of DIY food kits and home experiences. This gave many businesses the opportunity to keep afloat but also to push their brands to loyal and new customers.

Restaurant operators also realised the need to collaborate with other brands and used lockdown to tighten their business plans, develop and test new recipes and to retrain and reskill themselves and their staff.

When allowed to open, restaurants quickly learnt that they needed to make their customers feel safe in a COVID secure and friendly atmosphere through effective management, measures and planning.

A real positive that has and will continue to emerge into 2021 is the importance of community and the discovery of local restaurants and increased support for them. It seems that consumers are increasingly wanting a neighbourhood hub as they spend more time closer to home. DGrande opened their doors in Chiswick in May 2020 and quickly noticed that they had “a welcoming and supportive local community” and they go into 2021 realising that you shouldn’t “underestimate how much the community will be willing to do their best to support their local businesses”.

Rent and Rates rethink?

Restaurant tenants have benefited from the Chancellor’s business rates holiday and VAT relief as well as the other measures implemented to help keep operators afloat, but let’s see if there will be any long-term adjustments that the industry has been demanding in recent years.

We have seen varied reactions from landlords. Some have responded quickly with rent concessions and offers for more frequent lease break options or the acceptance of rent on a monthly basis to ease cashflow. Others have taken a firmer line and insisted that tenants should continue to honour their lease terms, which often simply leads to the restaurant’s arrears mounting. Currently, the landlord is prevented from seeking to forfeit these leases due to the Government’s intervention, but it will be interesting to see how these restaurants will fair when the moratorium ends presumably sometime in 2021.

Will consumers continue to demand more smaller independent restaurants in 2021? If so, landlords may need to reduce rents if they are to attract these brands to their properties. This could see a market shift in rents or wider use of longer rent-free periods by landlords.

Still trendy?

In recent years we have seen more foreign brands entering the UK market such as Din Tai Fung bringing their famous dumplings to our shores, but with world travel seriously affected by the virus many of these plans went on hold and it is hard to see whether these rollouts will take effect in 2021. In fact, some, such as Wahlburgers, have closed and suspended all plans to open in the UK in the near future.

As you might expect with limited international travel, both for business and tourism, hotels in the UK have also been struggling. How will this affect the recent trend of securing a star chef in hotel restaurants in 2021?

What’s next?

Plant-based restaurants and food has continued to prosper. In particular, plant-based meat substitutes such as Neil Rankin’s Symplicity started with a burger concept but during the pandemic he soon realised he had to; ”switch to a wholesale business model” and he now supplies the like of Soho House, Gordon Ramsay Street Burger and Homeslice.

There was a real focus in 2020 on food shortage with the Felix Project and FareShare continuing to both prevent food waste and help feed the hungry. Many restaurants were supportive and the issue was also highlighted by Marcus Rashford’s free school meals campaign. This issue will continue to be priority for many in 2021.

Restaurants now realise the importance of continuing to embrace reducing their reliance on single use plastic packaging and adopting new eco-friendly practices as well as improving their sustainability.

With a lack of desire for new operators to take on expensive premises we are likely to see more short-term residencies and other collaborations which will have the added effect of allowing them to test their concept with a relatively low up-front cost.

It has certainly been a tough year for the sector but with added resilience and an apparent end in sight 2021 has to see the start of a restaurant revival.

At Clarkslegal we are passionate about food and restaurants. Visit our sector page for more details.

 

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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Simon Ralphs

Simon Ralphs
Partner

E: SRalphs@clarkslegal.com
T: 020 7539 8049
M: 0779 900 7323

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