Article
Written by Colin Sanders
Posted on 05/03/2018

Restaurant Recession?

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So, are we in a restaurant recession? The daily papers will tell you we probably are. Jamie Oliver’s publication has stopped, hasn’t it? It makes for juicy headlines when a man, who’s hardly been off our TV screens for the last 20+ years, makes the press in a bad way. Amongst analysts, opinions are mixed. Is the sector just righting itself because we have too many restaurants? Possibly. This comes on the back of the Pub sector which has seen many closures. At one stage, during the last recession, some 400 pubs were closing every week.

Perhaps, because of “Great British Menu, Saturday Kitchen, Bake-off “ etc., we have become wannabe chefs ? Yeah, right! Maybe, we are just not bothering to visit restaurants as much, and would rather stay in, watch a film with a bottle of wine and……………………..get a takeaway! Sadly, probably the latter. We don’t even have to get out of the chair to get it: Deliveroo, Hungry House, Just Eat and even Uber are taking care of that. The truth is in the numbers. However, whilst analysts talk of a high street recession, this does not include takeaways. There are now 4,000 more takeaways in Britain than there were in 2014!

You could also argue that yes, there are too many sit-down restaurants. You can go to any high street in any town or city and you will see the same names:, Nando’s, Pizza Express, Prezzo and many, many more. Prezzo’s recently announced a large number of closures in order to fend off administration. That may not be enough…

The headline makers will no doubt paint the blackest of pictures when it comes to the restaurant sector and maybe they will be proven to be right but with 4,000 more takeaway restaurants, does this not provide additional opportunities for suppliers? Of course, it emphasises that suppliers - to this sector and in general - have to be open to changes and diversification. Meat/poultry, vegetables/fruit and packaging have great opportunities ahead of them to take advantage of this growing area in the retail food sector.

With opportunities though, comes risk (doesn’t it always?). The credit managers/controllers need to have their wits about them more than ever. Due diligence is key, as well as ensuring they have ALL the information to make the right judgement call for their business. We operate in a fast-moving world where changes can happen overnight in some cases. What was good yesterday, may not be good today and can be a disaster tomorrow. Look at Russel Hume Ltd, which failed recently. In its last filed accounts to 31/3/2016, these were its financial highlights:

Sales, £130.9 million (£128.9 million)
Pre-tax profits, £3,709K (£3,904K)
After tax (and dividends) profit, £2,933K
Shareholders funds, £33.9 million
Working capital surplus, £30.4 million
Cash at bank, £18.4 million

Based on these, who wouldn’t trade on a credit basis? Try telling your sales person and sales director not to deal with a company with such results! But this just emphasises how quickly things change and how meaningless a credit report can be if it’s just based on historical data, “number crunching”. That’s old hat, at least that’s how we, at Graydon, see it and have done so now, for many years – 130 years actually. It only took a few weeks for this well-established, very profitable and cash-rich business to fail. What triggered this downfall? A surprise visit from the FSA (Food Standards Agency). With food, you have to be whiter than white, squeaky clean in fact. Yes, but it’s a one-off, isn’t it? Sadly no. Remember “Salmonella in eggs“, “BSE in beef “ and who can forget the recent horse meat scandal. Mind you, if you purchase £1.00–lasagne, you can’t reasonably expect  it to be made of prime cut beef, can you? Anyway, I digress.

The point I’m making is: you may be at risk. Do you solely rely on your credit report? Especially, one that may base its ratings on historical data? Or do you utilise a CRA that prides itself on added intelligence?

Always at the forefront of intelligence data,. Graydon has been operating an Intelligence Networks department across a variety of sectors for more than 15 years. Because of our success, we are now expanding our sector network. By popular demand - from existing members as well as prospects - meat/food is the first sector we are developing in 2018. 

Unfortunately, this sector is likely to see increasing insolvencies for a number of reasons we have highlighted above, as well as because of the ever-existing threat of fraud.

Want to know more? Don’t hesitate, contact us and see how we can help.