Casual-dining chains often end up in the position of overpaying for real estate in order to be where the people are right now, as opposed to building up a clientele like a neighborhood joint would. They also have to deal with more complicated financial deals that make it difficult to weather shifts in consumer tastes.
— Jason Clampet
The U.K.’s restaurant crisis shows no signs of letting up, with an operator of Argentine steakhouses this week becoming the latest to approach collapse.
London-based Gaucho Group Ltd. cited high debt levels and poor performance at its 22 Cau burger outlets as it took steps Wednesday toward administration, the British version of bankruptcy protection. The company, which also owns 16 Gaucho steak restaurants, is far from alone as food costs rise and more consumers opt to eat at home or splurge on something other than chain eateries.
Jamie’s Italian, Byron Hamburgers and TPG’s Prezzo have moved to close sites. Strada and Carluccio’s have announced rescue plans. Mediterranean restaurant chain Hummus Bros and designer Terence Conran’s Prescott & Conran fell into administration last month.
While woes in the casual dining scene are also apparent in the U.S., with chains from Applebee’s to Bertucci’s suffering recent reversals, Britain faces particular challenges. Labor costs have risen on an increased minimum wage, just as the U.K.’s coming exit from the European Union has reduced the pool of skilled waiters and chefs entering the country from places like Italy, Spain and France. The pound’s decline since the U.K.’s 2016 Brexit referendum has made importing wine and food more expensive.
A strategy too focused on expansion may also be to blame. Many struggling restaurants opened at a time when rents were high, according to Anna Barnfather, an analyst at Liberum. And in a market so full of competitors, customers notice when restaurants cut costs. “Focusing on quality and service standards and not just on expansion is key,” Barnfather said.
Television chef Jamie Oliver’s Italian chain dismissed several midlevel managers responsible for quality control a few years ago, and quickly found its quality deemed “dreadful” by Harden’s Best U.K. Restaurants, a dining guide.
Gaucho sought proposals from potential buyers but ultimately couldn’t avoid Wednesday’s filing of an intent to appoint an administrator, a spokesman said in a statement.
“It is with regret that due to the complexities of the group’s legal structure, ongoing underperformance at Cau and the level of indebtedness, the directors have been unable to find an agreed, solvent solution,” the spokesman said, adding that it’s “business as usual” for the company until it appoints an administrator.
©2018 Bloomberg L.P.