CVA seems to have become the abbreviation of choice for a flurry of national restaurateurs seeking respite from a perfect storm of falling customer numbers, rising rent, rates and labour costs and the seemingly relentless rise of online food providers unburdened by the costs of bricks and mortar.
Facing the urgent need to shut sites and reduce rents to keep trading, casual dining chains are increasingly using the Company Voluntary Arrangement (CVA), an insolvency process that allows a business to shed unprofitable sites and agree rent reductions with landlords to avoid the possibility of entering administration.
The scale of the problems affecting those wanting to keep us eating out as opposed to taking out is highlighted by recent research by accountants UHY Hacker Young and KPMG – more than one third of the UK’s top 100 restaurant groups are loss making, pre-tax profits across that group falling by 64 per cent and the ‘crisis’ gripping the sector set to continue throughout 2018.
Fuelled by debt-backed private equity finance, the casual dining scene became saturated and bloated. It expanded too fast and too widely, thereby seeing the costs of running a physical property estate rise exponentially and as times got tough, the inevitable need to prune portfolios and seek rent reductions from landlords.
KPMG does stress however, that eating out has become “firmly entrenched in our day-to-day lives” with a bright future for operators who “stay relevant and place the customer experience at the heart of their business”.
And UHY believe the restaurant industry will emerge leaner and fitter from a “necessary period of consolidation and restructuring” to remove excess capacity caused by its rapid overexpansion.
The closure of hundreds of sites by the likes of Prezzo, Strada, Jamie’s Italian and Byron has a marked effect on the commercial property market, dramatically reversing the trend in the boom times when occupiers were prepared to pay top dollar for locations in rents and premiums.
Landlords now face the harsh economic reality of casual dining by needing to secure new tenants on more agreeable – in other words, reduced and realistic – rental agreements or be left with an empty site, not generating income.
Consequently, landlords need to think long and hard about who they want to occupy their property and consider the wider benefits of working with smaller and independent providers of food and beverage (F&B).
They should look beyond basic issues such as the covenant being security in terms of the value of the tenants’ business and more about how successful they think the proposition may be.
They have an essential role to play in helping a tenant to succeed because this is the only sensible route to a long-term and mutually beneficial relationship, in part by being flexible and proactive to accommodate an occupier’s requirements.
By their very nature and scale, smaller and independent food and beverage providers offer a ‘unique selling point’ with a distinctive offering of menus tailored to the taste and needs of a local customer base.
At Fazenda, we chose our locations in Manchester, Liverpool, Leeds and Edinburgh with great care, waiting for the right site and the right rent offered by the right landlord.
Sustainable and measured growth including making the crucial decision on location allows smaller F&B providers to create and manage a successful business, attract customers and consequently, add value to a landlord’s property.
Landlords hoping to replenish their coffers and wanting to share in the success we and other independent operators have had across the North would do well to think flexibly and imaginatively rather than be seduced by the high expectations of big money F & B roll-outs.
Ultimately, restaurants in general help to create a destination and add value through placemaking for the benefit of all.