In a slowdown, economists say to expect the squeeze in the market’s middle: for Britain’s recently fast-growing restaurants, it’s starting with lunch.
Chef Pascal Aussignac, who has been serving Londoners at the chic Club Gascon for almost a decade, says rising inflation, housing and food prices are pinching his customers’ midday purses.
``People are eating more at their desk, they’ve cut down their budget.’’ he said. ``Only senior people are lunching at a restaurant. We feel the credit crunch at lunchtime.’’
Chefs in the UK’s £24 billion industry, such as Michel Roux, owner of London’s Le Gavroche restaurant, have seen the price of a fillet of beef rise to £26, from £19 in January, Roux said.
``I am taking a bitter pill,’’ Roux said on the sidelines of a food festival, Taste London, where elegantly dressed women in wide-brimmed hats sipped champagne and sampled oysters.
But analysts say his Mayfair restaurant – which charges an average of £80 per head – and other up-market sites where customers don’t need to look at their pay cheques ahead of a decision to dine are not on the front line.
It is the mid-market tier, charging between £20 and £30 per head and mainly set in provincial Britain where the prospect of tougher times and rising prices are prompting ordinary people to eat more at home.
``It’s a sector that’s going to have a really tough time,’’ said Peter Baldwin, a partner at law firm Jones Day, which specialises in debt restructurings and insolvencies. ``The first bit of expenses that people cut are the personal expenses, like restaurants.’’
With talk mounting of Britain heading to recession, hotels and restaurants remain the least confident sectors amid concerns about weakening new business and shrinking disposable incomes, The Chartered Institute of Purchasing and Supply recently said.
UK firms’ cashflow is at its weakest in 16 years, car registrations are down, industrial production has fallen sharply and consumer confidence has dropped to the lowest level since the Index that tracks them was created in May 2004, according to Nationwide. Half of all people think the present situation is ``bad``, it said in its most recent report.
Home delivery is the fastest growing segment of the ‘eating out’ market, according to Mintel, the market research firm. Domino’s Pizza reported strong trading in the first 16 weeks of 2008 with like-for-like sales up 13.3 per cent.
``There are two trends at play,’’ said Mark Brumby, leisure analyst at Blue Oar Securities. ``One is the couch potato/fat person mentality that we’re all getting into a little bit and the other is the fact that (takeway or home delivery) is cheaper. It would be difficult to disaggregate which was which.’’
The model for rapid expansion of restaurants in towns during recent years has often been to make the most of their high cash flow to fund growth through borrowed funds. So investors in distressed ventures, some known as vulture funds, have a keen eye on mounting insolvency in leisure.
``Another six months and we’re going to start seeing casualties,’’ said Tom Aikens, one of the most prominent chefs in London, who has three restaurants serving high-end to middle-tier customers. The number of hospitality, leisure and restaurant companies filing for administration in Britain rose to 70 in the first quarter from 60 over the same period in 2007, according to accountancy firm Deloitte.
Sports Cafe Holdings and The Copper Pot, which serves Indian food, are among the companies that failed this year, Deloitte said.
``Before, the sky was the limit, now the pocket is the limit,’’ said Nicolas Dreyfus, an independent caterer based in West London. ``People are more careful, they don’t take the best of the best as before, they pick the next one after.’’
According to him, £50 bottles of Duetz champagne have been replaced by cheaper bubbly, while sea bass and salmon are in more demand than oysters and lobster.
Among the curry houses of London’s Brick Lane, chef Azmal Hussain said in April he had closed one of his four restaurants because of high rice prices and lean times for his financial markets customers ``The credit crunch and the food crunch makes my profit margins less,’’ he said. ``One way or the other, if you cannot survive then you have to close the restaurant.’’
Restaurant chains have dropped plans to list their shares in the stock market, including Tragus, owner of the Cafe Rouge, Bella Italia and Strada chains, and controlled by US private equity firm Blackstone.
Wagamama, owned by Lion Capital, and Gaucho Grill, a chain renowned for its Argentine beef, also scrapped plans for an initial public offering.
Listed restaurant companies have seen their shares slide as investors fear for the future.
Clapham House, operator of the Gourmet Burger Kitchen and Tootsies restaurant chains, has lost 75 per cent of its value over the past 12 months as growth slowed and full-year pre-tax profit fell by one third.
Seafood chain FishWorks has tumbled by almost two thirds over the past year as rising food prices cut profit margins to 61.7 per cent, from 62.7 per cent, the company said in April. The company is also looking at the possible sale of assets, it said.
Italian restaurant and delicatessen chain Carluccio’s has also seen its share price fall by almost a third this year, which it described in May as ``challenging``.
Fewer customers may soon be walking into Carluccio’s to buy olive oil bottles costing as much as 13.95.
``We ate out normally, two or three times a week, now it’s more like once, in the weekend,’’ said Abigail Orton, an office worker attending the London Taste festival. ``At work, now we have to go for coffee, instead of alcohol.”
Her friend Edward Ekins, an investment banking recruiter, also admitted: ``I go to my parents more often as they have a great cellar, so I can steal it from them, instead of spending money. The credit crunch makes them see their children more.’’