Why are so many chains closing sites?
Is Brexit to blame or maybe it’s simply a case of protecting and reinvesting current assets!
In the summer of 2015, restaurant owner David Fox was made an offer he couldn’t refuse. One that today – with financially troubled chains such as Byron and Jamie’s Italian desperately restructuring and closing sites in order to stay afloat – seems to encapsulate the great UK casual dining bubble that has finally, spectacularly, burst.
Fox then had branches of his east Asian restaurant brand, Tampopo, in two huge shopping centres: Oracle in Reading and Cabot Circus in Bristol. He was facing a painful rent increase in Reading but, remarkably, the owners of the centres offered him £1.3m to vacate both sites – such was the clamour, presumably, among the biggest restaurant players to snap up any empty space at top-of-the-market prices.
“In Reading, the rent was £75,000 and they wanted to put it up to £130,000. I was being offered £650,000 to hand over the keys. It was quite unemotional. When someone offers you 10 years’ money, it’s time to move on,” says Fox, who still runs five restaurants in Manchester and London. “It was symptomatic of how giddy the market was and, for most normal brands, it’s kind of unsustainable.”
For Fox, the current turmoil is entirely predictable. Unless every element works perfectly, it is almost impossible to make a return on restaurant sites that might cost £1.5m to open. “I don’t want to sound smug, but we saw it coming,” he says. “There was a lemming-like mentality.” Tampopo’s Bristol site first became a Chimichanga, a reported £600,000 development. It is now a Real Greek. The Reading site is a TGI Fridays.
For a time, between 2010 and 2016, it seemed as if Britain’s burgeoning interest in casual, affordable dining was insatiable. Build that restaurant, no matter how outrageous the property and fit-out costs, and they will come. Tills will ring, card machines will whirr. But in recent months, with the so-called “casual dining crunch” biting hard, that optimism has turned to bleak talk of the industry facing a perfect storm. As well as the problems at Jamie’s and Byron (the former is closing 12 branches and is £71.5m in debt; the latter is in the midst of a financial rescue plan), the Italian chain Strada recently shut a third of its restaurants and its rival Prezzo is now looking at restructuring. Numerous venues, from the five-strong Square Pie group in London to, again, Jamie Oliver’s Piccadilly barbecue restaurant, Barbecoa, have gone into administration. “What we didn’t see coming was Brexit and its implications on exchange rates, recruitment and consumer confidence,” says Fox.