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Out of the frying pan and into the fire for the UK restaurant sector in 2019?

04 January 2019 #Food and Restaurants #Entrepreneurs & Start-Ups #Real Estate

It has been a difficult 2018 for all of us and with increased uncertainty over what the future holds in Europe consumers seem to have tightened their belts and spent less on eating out.

The obvious knock on effect has (according to Moore Stephens) seen record restaurant insolvencies of 1,219 in the UK during 2017/18. This is up by 24% against the previous year.

Hardens annual report also seems to support this pattern showing 117 independent restaurants closed in London in 2018 with only 167 new openings.

Closed Sign

It has not been all doom and gloom. As is often the case where there is difficulty there is opportunity and we have seen some very interesting new concepts and restaurants opening which are mentioned in more detail below.

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?

1. Chain restaurants struggling?

The year continued to see some chains having to close existing stores with probably the most publicised being Byron, Strada, Jamie’s Italian and Prezzo.

Some of this seems to be due to the general slowdown in the sector but other factors include pressure from private equity investors to scale up and open more branches. Often the desire to get more stores open means less time is taken to really consider whether the brand would succeed in a certain location.

Not all fast casual and smaller chains are struggling. Richard Caring’s Ivy Collection seems to be going strong with strategic openings in brand ready locations. Also, Franco Manca continue to open well performing branches and their owner Fulham Shore have recently reported a 20% jump in year on year profits.

Add to this Wagamama’s recent announcement that staff will get a share of a £4 million bonus pot (due to the recent sale of the chain) and it seems not everyone is suffering.

We expect to see the slimming down by some of the weaker chains as they look to consolidate their lower profits over the past few years.

2. High rents and tax woes.

Restaurant tenants continue to complain that high levels of rent, business rates and VAT are making it very difficult to make a profit in the sector.

The government seems to have responded to this challenge by announcing new business rates cuts but whether this will make a big difference remains to be seen in the next year.

No announcements have been made about an adjustment to VAT at this stage.

With an increasing consumer demand for smaller independent restaurants landlords might need to reduce rents if they are to attract those types of brands to their properties. This could see a market shift in rents or wider use of longer rent-free periods by landlords.

Restaurant 1

3. Emergence of new trends and independents.

Plant based restaurants and food had a bumper 2018 with new openings in London from the likes of By CHLOE and plans for expansion of Redemption Bar into Covent Garden.  Most restaurants have adopted vegan dishes on their menus and veganism became even more popular on social media with lifestyle bloggers.

Zero waste awareness in the food and restaurant sector became more prevalent with a good example being the restaurant Native who recently moved to a new home near London Bridge and incorporated “Chef’s Wasting Snacks” into their menu. All made from food and offcuts we would usually discard in the kitchen.

Consumers, with the help of campaigning from Sir David Attenborough, embraced reducing their reliance on single use plastic packaging. This is likely to continue into this year with more chefs and restaurant kitchens looking to improve their sustainability.

The flip side to the chains reducing their restaurant stock and other restaurants struggling means that there are more properties becoming available for the new and independent restaurants to occupy. Add to this the desire for some landlords to steer away from the chains and more established brands then this can only be positive news for the new entrants into the sector and of course the consumer.

4. Foreign invaders

A number of overseas restaurants have chosen now as a suitable time to enter into the UK market. At a point where the UK is looking to bolster its foreign connections and relationships post-Brexit this might be seen a good timing.

Big names that have made the move include Red Farm and Din Tai Fung who have both brought over their famous dumplings. The former from New York and the latter continuing their world domination with their first venture in London with another soon to follow.

If you thought the burger trend had reached saturation point, then the American chain Wahlburgers would appear to disagree, with their first UK outlet due to open in Spring 2019. Taco Bell have also announced plans to further expand throughout the UK in the next year.

Restaurant 2

5. The B word and investor nervousness

As we are all probably tired of hearing, Brexit has caused uncertainty in the UK on many levels. This has had an impact on the restaurant sector too by making customers less willing to go out and spend money at restaurants.

The sector has also had to think about staffing and whether existing overseas employees will be leaving or restricted by Brexit. This could cause real problems for restaurant staffing at all levels from pot scrubbers to senior chefs.

Investors in restaurants have also reflected the general mood this year with many institutional lenders shying away from opportunities unless the restauranteurs already have at least 2 or 3 well performing restaurants.

The avenues available to start ups and new concepts tend to be the secondary lenders who will take the higher risk for greater interest and crowdfunding where restaurants rely on their fan bases by offering shares and rewards in place of investment. Good examples of this in the last year were The Cheese Bar and Monty’s Deli. Both have one restaurant already and presumably without success from the institutional lenders both secured around £200,000 to help them progress their second venues.

Street food trading is still a popular way to test your brand and food offering at a relatively low cost. It also helps to showcase your product and gain fans before looking to crowdfund or raise capital for that first bricks and mortar restaurant. We expect this trend to continue up to and beyond Brexit.

There also seems to still be an appetite for food markets/halls with new openings this year by Market Halls and plans for future openings by Time Out, Kerb and Eataly throughout London.

6. Hotel restaurants stars

It’s not just the restaurants who have seen a dip in custom, so have the hotels in the UK and one way to get the guests visiting is to have a star chef in your hotel restaurant.

This is not a new ploy by hotels as guests who pay vast amounts to stay in luxury hotels also expect there to be a Michelin star level of restaurant offering.

In 2018 Tom Kerridge opened his first restaurant in London at the Corinthia Hotel and Adam Handling is set to take over the food offering at the Cadogan Hotel in the coming year.

Nathan Outlaw will also take over at the Goring Hotel in the spring and expect more announcements in the coming year with the likes of Fera at Claridge’s set to close.


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Simon Ralphs

Simon Ralphs

T: 020 7539 8049
M: 0779 900 7323


Food and Restaurants team
+44 (0)118 958 5321