One Scottish restaurant went bust every three days last year - with failures blamed on rising rates, higher supply costs and home delivery food services.
The number of restaurant collapses rocketed by 86.3 per cent in 2018, taking the number of failures to record levels, according to a report from French Duncan LLP. The firm analysed official Insolvency Service statistics and found that annual restaurant failures increased from 73 in 2017 to 136 last year, accounting for 13.9 per cent of all corporate failures in Scotland last year.
The study found that rises in business rates and rents were putting financial pressure on restaurants at a time when the cost of ingredients and staffing was also rising. The sector also faced increased pressure from the home delivery food business - such as Deliveroo or UberEats - while some restaurants were relying on increased footfall from discount offers and vouchers, which reduced their profit margins.
Eileen Blackburn, head of restructuring and debt advisory at French Duncan LLP, said: “These figures once again highlight the difficulties the restaurant sector is facing. A near doubling of the number of restaurant failures in one year is a quite alarming reflection of the state of the sector.”
“This is undoubtedly due to the continuing problems faced by the High Street which has seen restaurants and retailers hit badly over the last year. The issues facing the High Street continue with high business rates and inflexible landlords contributing greatly to the problem. Local councils and landlords must accept that they cannot continue to milk High Street businesses for cash as too often the result are more closures and more boarded up outlets.”
She said that while the official figures accounted for restaurants which entered a formal insolvency procedure, many others were likely to have closed due to financial struggles before reaching that point.
She said: “Far more restaurants close without entering into a formal insolvency process so the numbers struggling on a day to day basis will be huge. Opening a restaurant has always been difficult but there are greater complications with high rents, high rates, increased staff costs, and, for those importing ingredients, higher supply costs.”
The report added that there was also an issue with over-capacity in the sector and described the discount voucher model as "outmoded".
Ms Blackburn added: “Many restaurants are also being hit by the growth of delivery services which has opened up an enormous new market from food outlets that never delivered before giving consumers the option of saving some money by eating takeaways at home. Equally the pub food market continues to grow both in the form of successful chains and individual outlets allowing for an evening out at less cost than most restaurants can manage.
“It is clear that the restaurant market is experiencing an extremely difficult time. Unfortunately, these very high figures may only be the beginning of continued difficulties for the sector in the coming years.”