This week Pizza Express joins fellow high street eateries in fearing for its future. Last month saw talk of potential closures to Frankie & Benny’s chains and Chiquitos. This comes at a time when a number of high street food chains feel the pinch. Reports coming from Pizza Express indicate they are preparing for talks with creditors.
Loss making entities
According to tabloid reports, 2 in every 5 Pizza Express outlets are loss making. BusinessLive reported that in 2018, Pizza Express reported debts over £1bm and pre tax losses of over £55m. Feedback to the press has been mixed with the company declining to comment early on. This however changed days later when they told press “95 per cent of our UK&I restaurants are profitable. There are no plans for closures outside the normal course of business.”
All this comes just a month after reports surfaced that giant Frankie & Benny’s has planned 42 closures. This is on top of 76 closures earlier this year despite the company buying Wagamama to boost its portfolio. Frankie & Benny’s also own Mexican chain Chiquitos. Chiquitos also felt the axe as a number of these restaurants were included in the 76 closures.
With Frankie & Benny’s owner group The Restaurant Group’s share price dropping 18% 2 weeks ago, times look tough for the high street restaurant chain. Is this a sign of things to come?
Consumer spending rise
What is troubling for these high street chains if losses continue is the quest to find their lost ground. Consumer spending in 2018 rose by 8.7% with pubs and restaurants benefitting the most. Consumers seem to be more willing to head out to dine which should be encouraging for many high street chains. However in the case of Chiqitos, Frankie & Benny’s and Pizza Express, there may be problems.
The main crux seems to be the extremely high level of competition in the sector. With casualties including Jamie’s Italian and Prezzo, casual dining is becoming a very saturated market. Historic heavy hitters are suffering despite consumers willing to part with cash on dining out.
AYOM’s General Manager Marie spoke to us regarding the closures and competition in the market:
“It’s a tough one at the moment. Consumers want to spend but companies need to do more than maintain the status quo. With an influx of brands to the UK over the last 10-15 years including Nandos, TGI Fridays and Five Guys among others, so many are fighting over the market space.”
“From a debt collection point of view, we see a number of related industries get stretched. This includes a host of suppliers. With food industries this is always a contentious issue. Often lead times and deliveries are made many times a week if not daily. This may see many overlaps with credit terms stretching to 30/60/90 days or more. This balance can be greatly affected dependant on the speed of restaurant closures.”
Controlling “credit control” procedures
Allowing credit to continue to build and not chasing strongly enough can cause major liquidity concerns. A recent AYOM case study of one of our largest clients highlights the effects. The client is an international not for profit organisation. Debts piled up over 6 years and beyond. The company, with no real credit control procedures, was owed tens of millions of pounds.
While this may be an extreme case, the hospitality industry does require strong procedures and a good grounding. SMEs without the capacity for chasing invoices are strongly advised to seek external help. This way you can better secure a positive cashflow. If this fits your business, AYOM’s advisors are available to talk over setting up procedures on 0800 130 3357.