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Restaurant chains scale back as business investment uncertainty rises

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

Earlier this month, the Association of Licensed Multiple Retailers (ALMR) advised that bars, pubs and restaurant chains are pulling back on their expansion plans and in some cases, may close outlets as a result of big rises to the cost of food and drink.

They said that food price inflation for licensed businesses is currently standing at 9% whilst the rise in the cost of drinks has recently hit 7%. The ALMR mainly attribute these rises to the fall in the value of the pound after last year’s vote to leave the European Union.

As price rises have hit the UK food and drink sector so has the introduction of the national living wage, which has raised the wage bill for many, alongside business rates rises and mandatory pension contributions. While all these increased costs pile up for businesses in this sector, many outlets are reluctant to pass the costs on to their customer through a rise in the price of their products.

Chief executive of ALMR, Kate Nicholls, spoke at the Food and Drink Federation convention in London recently regarding the avoidance of price rises; “There is a real reluctance to increase prices to the consumer for fear of damaging fragile discretionary spend… There is a risk that additional costs could hit at a time of great instability hitting eating and drinking out businesses that are crucial to the UK economy and have helped restore prosperity to our town and city centres.”

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As inflation rises, there has been a drop in the number of people eating and drinking out which has led to a significant drop in business confidence and with recent news of businesses in this sector struggling it is clear to see why confidence is so low.

Over the last few months, Handmade Burger Co has entered administration, Affinity Bars and Restaurants has closed four pubs and burger restaurant Byron is reportedly considering closing four of its outlets. As bars and restaurants begin to close and expansion is reined in and reconsidered, other businesses in this sector are just trying to manage the current storm and hoping the market and the economy improves over the coming months.

While restaurants are dealing with a big rise in their day-to-day costs, the chancellor Philip Hammond recently spoke to the BBC regarding the outlook of UK businesses and Brexit. He said that many businesses are holding back on their investment and expansion plans due to the uncertainty of Brexit on the UK economy. [http://www.bbc.co.uk/news/business-40623473]

He said; “It is absolutely clear businesses where they have discretion over investment, where they can hold off, are doing so – you can understand why. They are waiting for more clarity about what the future relationship with Europe will look like.”

His comments come as a Confederation of British Industry (CBI) survey was released suggesting that 42% of companies in the UK believe Brexit has hurt their investment plans. The CBI has now called on the government to secure an EU trade deal quickly as this will provide some much needed certainty to businesses across the UK.

The CBI survey shows a similar mood in the corporate world as that which Deliotte, the Institute of Directors and the British Chambers of Commerce found in their recent surveys of many business leaders.

Businesses, particularly those in the food and drink sector, have warned that the uncertainty surrounding Brexit is also affecting the availability of labour. As a significant amount of workers in the hospitality industry come from overseas – around 70%-80% in London alone – businesses are facing a labour shortage on top of the other obstacles they are dealing with right now.

With Brexit talks still ongoing, many businesses will be hoping for a quick resolution to the arrangements for trade and free movement of people when the UK leaves the European Union in March 2019.

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