No one likes being wrong but, in this case, I will make an exception. In the first column of 2018, I predicted the great restaurant gold rush in Edinburgh would come to an abrupt end this year.
I warned that with more and more chain restaurants arriving in the city “something has got to give and it’s not likely to be the chains. The challenge will be for the local independent restaurants struggling to pay rising food costs and wage bills as well rents, rates and VAT as well. Sadly, some of them might not survive the wave created by the landing of the ruthless national chain restaurants”.
Half of that prediction has come true. The great restaurant boom in Scotland’s capital now looks to be over but this summer it is the chains that have been left looking decidedly broken. The Gaucho Group is the latest casualty. This week it collapsed into administration, threatening up to 1,500 jobs around the country. Staff at the Cau restaurant in Castle Street in Edinburgh, which is part of the chain, lost their jobs on Thursday. This weekend liquidators are trying to sort out the mess and save the 16 flagship Gaucho restaurants, including the St Andrews Square outlet which only opened last November.
In many ways, Gaucho epitomises the problems with fast-expanding restaurant groups. Since 2016, it has been owned by private equity firm Equistone. Their website talks a lot about portfolio investments and capital support. It doesn’t say anything about food.
Not so long ago, private equity companies were swooping on restaurant chains like Strada, La Tasca, Zizzi and Prezzo, spying easy ways to grow the businesses and make quick money. However the wind of change was coming and changing consumer spending habits, the National Living Wage, increases in business rates and the devaluation of the pound after the Brexit referendum have combined to burst that bubble.
Major chains such as Jamie’s Italian, Byron and Carluccio’s have announced plans to rationalise and close outlets. Part of the problem has been greed. In their haste to expand, the chains lost sight of business reality. For some that meant grabbing sites at rents that made no sense. Restaurant owner David Fox tells of being offered cash to vacate sites occupied by his Tampopo chain down south, just to make way for bigger operators. It really got that mad.
Location is important for restaurants but it’s not everything. Developments like St Andrews Square can create a frenzy for space that overtakes simple questions like, is there enough demand for another thousand restaurant covers?
While the chains retrench, independent restaurants in Edinburgh have been watching, learning and doing quite nicely thank you. New summer openings include Fhior in Broughton Street and Fishmarket Newhaven, while the team behind The Gardeners Cottage are putting the finishing touches to their landmark new restaurant on Calton Hill.
Last year around 1,000 restaurants closed in the UK, an increase of 20 per cent on 2016. This year’s final total is likely to be even higher. The truth is, if you have a good business model, great food and staff and you understand how the local market works, it is still a profitable enterprise in so many ways. However, as Edinburgh proves, if you are instead a financial speculator with no love for food but a passion for making a quick buck, investing in Bitcoin might be a much better option.