Thousands of UK restaurants could be at risk of going out of business in the next three years, as the fall in the value of sterling raises costs for imported food and threatens to squeeze consumer spending.
Over 5,500 restaurant companies have a 30 per cent chance of going bust by the end of 2019, according to analysis by accountancy firm Moore Stephens.
Many restaurants rely heavily on foreign food imports, and particularly on imported wine which will cost more as the purchasing power of the pound falls. Almost half of British food (including both restaurants and households) is imported, according to government figures, with 29 per cent coming from the European Union.
The restaurant sector is highly competitive, with rapidly changing trends in customer preferences contributing to a constantly changing market. In London alone over 200 restaurants have opened this year, according to the analysis.
Smaller, independent restaurants are also particularly vulnerable to currency fluctuations, as they are unlikely to employ the kind of medium-term hedging strategies used by larger businesses to avoid short-term price movements.
The pound has been gradually falling in value over the past year, but it fell sharply in the wake of the vote to leave the European Union. Against the euro the pound fell from above €1.30 as polls showed that the UK would remain in the EU to below €1.10 in October. It has since recovered to trade above €1.19.
As well as the fall in the pound, restaurant margins have been hit by wage increases, as the government-mandated national living wage was lifted from £6.70 per hour to £7.20 per hour in April 2016. Restaurants rely heavily on lower-paid workers.
Mike Finch, restructuring partner at Moore Stephens, said: “Restaurants have to make tough decisions as to how much they try to pass on to consumers; too much and they risk losing business, too little and they lose margin.”