Lack of finance could stifle restaurant industry recovery

17th August 2009, 8:56am

Major restaurant companies are confident that they can outperform the economy in the next couple of years but have warned that a lack of bank finance might curtail growth and expansion.

A survey of members of the British Hospitality Association's National Restaurants Group, and conducted by the accountancy firm BDO Stoy Hayward, reveals that over one-third of businesses believe there will be slight growth in both 2009 and 2010 while a similar number believes there will be strong growth in 2010.

No company is forecasting a strong contraction though about half forecast a slight contraction or no growth in 2009; this reduces to a quarter looking ahead to 2010.

The survey warns, however, that growth in the future will be curtailed if finance is not made more readily available. This is widely considered to be one of the most inhibiting factors to restaurant expansion.

The vast majority of businesses believe that the attitude of the banks to both current and prospective lending has hardened in the last 12 months; half say it's worse for current lending and over 60% say it's worse for new lending.

The pricing of finance is also considered a negative factor. Nevertheless, there is still an appetite for borrowing. Over one-third of businesses believe they will need additional funding in the next 12 months and half will need more in 2010/11.

Despite this confidence in the future, the survey reveals that customers are eating out less often and spending less when they do so, with corporate spending in significant decline.

"To meet this decline, it's clear that the sector has been quick to react," says David Campbell, BDO's Head of Restaurants and Bars.

"Over three quarters of the restaurants in the survey have reduced the number of staff they employ this year while almost two thirds have frozen wages and salaries. Menus have also been re-engineered by many and 88% have renegotiated food and beverage contracts. Their reaction to the downturn has been very swift and decisive."

Re-engineering menus is also considered one of the top measures for restaurants to grow their way out of the recession, though the most popular method is to introduce special offers and promotions (undertaken by 88% of respondents). Three quarters cited the better training of staff.

Apart from the lack of funding, other major inhibitors to future growth include the downturn in consumer spend, the availability of suitable sites, high food prices and the burden of regulation.

On regulation, restaurants cite the regular increases in the National Minimum Wage, which also raise the level of other wages, to be the area of greatest concern in the next year. The recent government ruling that credit card tips and service charge no longer count as earnings for the purpose of the National Minimum Wage, the Working Times Directive, Scores on the Door and the tightening of the immigration laws are also cited as areas of concern.

Bob Cotton, chief executive, BHA, said that this was the first survey the association had undertaken in this area. "We intend to build on it and produce it annually, so that it becomes a key indicator of the health of the restaurant sector," he said.

The survey was conducted among major restaurant groups operating in the UK, consisting of 24 brands with over 1,200 units employing 30,000 employees and with an aggregate turnover of over £1bn.

Related Articles:

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• 18 Aug 2009 - Restaurant operators urged to control costs
• 13 Aug 2009 - Are food trends going retro?
• 10 Aug 2009 - Restaurant industry economy is 'beginning to improve'
• 07 Aug 2009 - Latest figures show continued growth for local brewers

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