Record closures loom for Scottish restaurants

RESTAURANTS across Scotland are facing their most perilous year for decades, with fears of large-scale closures and job losses, an investigation by The Scotsman has revealed.

A survey found restaurateurs were bracing themselves for their toughest trading conditions since 1990, as the economic downturn forces businesses and families to slash spending.

The credit crunch cut the average restaurant's turnover last year by as much as 20 per cent and many owners expect this year to be even worse.

Industry leaders are deeply concerned that the congested restaurant market will mean many do not survive the frantic race for custom.

The Scotsman surveyed a variety of restaurants across the country and found most forecast a bleak year ahead. Our investigation revealed:

• Industry figures fear a "clearing out" of the restaurant scene, particularly in Edinburgh.

• An exodus of foreign chefs is expected as salaries shrink in relation to the euro.

• Hundreds of millions could be wiped off Scottish restaurants' total annual turnover.

• Those who import ingredients from Europe face rising costs because of the weak pound.

• Nearly two-thirds of customers say they will spend less on dining out in 2009.

• Rising number of restaurants are closing their doors for an extended holiday in January and not replacing staff when they leave.

"It's scary," said Roger Coulthard, proprietor of the Stac Polly chain of three Scottish- cuisine restaurants, one of which has gone on the market. "It's going to be like 1990 and 1991, but I think this recession will last longer. It's going to be dangerous for restaurants."

The restaurant industry is being squeezed by rising costs driven by the collapse of the pound against the euro, which is particularly hitting Spanish and Italian restaurants.

According to a recent ICM poll, 46 per cent of people will spend less in 2009 on dining out; a similar survey by MPG put the figure as high at 64 per cent.

It is a tremendous body-blow to an industry that has always been among the most precarious, with 20 per cent of restaurants failing within the first year and 75 per cent closing within five years.

Scotland has 6,000 restaurants with an annual turnover of 1.8 billion, and a drop of 20 per cent across the board – which some owners are anticipating – would mean the equivalent of a loss of 360 million.

Henry Oriol, who has run Le Sept in Edinburgh for 26 years, said turnover was down 10 per cent on the previous year and that staff who left were no longer being replaced. ''I'm worried. It's going to be bad. I don't have a crystal ball and no-one can guarantee who will be here next year".

Paul Stevenson, who runs the Italian Caf and the Italian Kitchen in Glasgow said that, despite a rise in turnover, profits had dropped 20 per cent as a result of rising transport costs and the strength of the euro.

Seumus Macinnes, who owns Caf Gandolfi in Glasgow and opened a second fish restaurant 18 months ago, is planning to change the perception that the fish restaurant is too expensive by introducing more comfort food.

At the east end of the city, Alfredo Coia, whose family restaurant celebrated its 80th anniversary last year, said diversity was the key to survival.

Tony Singh, the owner of Oloroso in Edinburgh, said the private dining room had been quieter following the loss of business from the financial services industry. But he insisted now was not the time to cut quality. "If you slash prices too far, you can't come back," he said.

At the capital's Circus wine bar and grill, profits are down by 12 per cent, with David McKenzie, the manager, reporting that "more tap water is being drunk, and cheaper wine". At Maison Bleue in the Grassmarket, Dean Gassabi expects January to be "very, very tough".

Edinburgh is expected to be among the hardest hit, as it has in excess of 300 restaurants, more per head of population than any other city in Britain.

Alex Buchanan, the editor of Catering Scotland magazine, said this year would see a "clearing out" of the capital's congested restaurant scene. "2009 will determine what restaurants are offering the best value and quality," he said.

"Those who are resting on their laurels or Edinburgh's reputation are unlikely to survive. The best will get to stay and it's not just down to luck."

It is a sentiment with which Michael Tough, who runs the Chefs in Scotland recruitment website, agrees. "It will sort out the wheat from the chaff," he said. "There are too many restaurants in Scotland anyway and those that are not particularly good will go to the wall."

The collapse of the pound against the euro has knocked up to 30 per cent off the wages of European chefs cooking in Scottish kitchens, with the result that many may choose to return home. "Scotland is now less attractive to French, German or Spanish chefs who previously enjoyed a rise in wages because of the strength of the pound," Mr Tough said.

Tony Crolla, of Vittoria on Edinburgh's George IV Bridge, buys all his products abroad and has seen prices rise with the strength of the euro. "Margins have shrunk and there are fewer people about, particularly at the start of the week," he said.

Meanwhile, catering recruitment agencies report a 40 per cent drop in advertised vacancies, with anecdotal evidence of a slowdown in restaurants' previously rapid staff turnover.

Yet the industry is not all doom and gloom, with a number of the 25 restaurants surveyed reporting stable profits and the occasional increase, while many are hoping the weak pound will result in a tourist boom this year. Malcolm Duck, the chairman of the Edinburgh Restaurateurs Association, said: "It will be nonsense to say that restaurants will not be affected, but it's too early to say. Restaurants go to the wall every year, and January and February are going to be very, very tough. But the weak pound may well bring in more tourists."

Among the first to notice the strains on a restaurant's purse-strings are its suppliers, as the payment of invoices slows to a crawl. L'Art Du Vin, an Edinburgh wine wholesaler, has already noted delays in the settling of accounts.

Richard Bouglet, its director, said: "Restaurants are naturally bad payers. If you're not on top of them, they'll take their time."

At Christie + Co, an estate agency specialising in restaurants, the expectation is the first three months of 2009 will see a rise in the number of sites up for sale and a "softening" of prices.

Business leaders warned the industry was crucial to Scotland's economy. Ron Hewitt, the chief executive of Edinburgh Chamber of Commerce, said the focus had to be on maintaining and building the resilience of the hospitality sector.

"This is never more critical than when the going gets tough," he said.

• Additional reporting by Neil Simpson.

Case Study 1: 'Sadly I think a lot of places will close'

AT Guy's Restaurant in Glasgow, the chef-proprietor, Guy Cowan, looked at the expanse of white space in the reservation book and decided to give his staff an extra holiday.

"We had planned to be open this week," he explained. "But there were only two bookings for the whole of the week, and as I was going up north I thought, what's the point?"

It was a bad start to what is expected to be a bad year for the restaurant industry, but fortunately Mr Cowan is coming from a position of relative strength. Unlike many restaurants, his reported a rise in turnover during 2008; however; he said the rise in prices meant profits have effectively stood still.

"We should be grateful – I had one restaurant manager in over Christmas and they were down 50 per cent."

He believes the only restaurants thriving are McDonald's and read with interest their plans to hire more staff. "Their upturn is everyone else's gloom, but it makes sense for some people to think, why go out when I can get four McDonald's for a tenner".

He does, however, plan to launch his own fightback and unveil a new lunch menu in January that will offer three courses for under 10. He said: "We will take a dunt in our margins on the deal, but the hope is that people will come in, really enjoy the food, which is fresh, good-quality food, simply prepared, and then think: 'Let's go back there for a special night'."

Although the recent survey, which claimed 46 per cent of people will cut back on dining out in 2009, is a worry, Mr Cowan believes that Glaswegians will still go out regardless of the economic downturn.

He explained: "Glaswegians have a habit of saying: "Screw it – I could be dead tomorrow". They will still go out and they will still want good- quality food. Sadly, I do think a lot of restaurants will close.

"I hope we are not one of them, but nothing is set in stone. You have to look on the bright side and think that fewer restaurants will mean more customers for those that survive."

The restaurant will reopen tomorrow.

Case Study 2: 'It's best not to look too expensive'

STAC Polly, the chain of three Scottish restaurants in Edinburgh, has never relied on local regulars. On Hogmanay, the tables were populated by a mini-United Nations as tourists from around the world tucked into tasty Scottish fare.

Roger Coulthard, the restaurants' owner, hopes this will help him weather the forthcoming storm. "The collapse of the pound will make it cheaper for European tourists to visit Scotland and that can only be a good thing, but it is a worry."

A veteran of the last recession in 1990/1991, Mr Coulthard fears 2009 will be even worse and could last longer. In order to slim down his operation, he put the Stac Polly in St Mary's Street on the market in August, but as it has not yet sold, he is planning in the meantime to rebrand it as a cheaper bistro.

"It's best not to look too expensive and intimidating at the moment. You don't want people walking by thinking, 'I'll save it for a special occasion'." He thinks the next year is going to be dangerous, but takes some comfort from the fact that everybody is in the same position.

Trade over Christmas was down 18 per cent on the previous year as a result of many businesses bypassing the traditional Christmas night-out. "In many ways, it was rather nice – quieter than usual with a chance to chat to people, but you would always prefer to be busy."

In January, he is already examining the menus with plans to cut the most expensive items. "Prices will have to come down, but we don't want to discount too heavily. What you can't do is lose the quality of the food or the service: these must be retained."

Mr Coulthard already runs a tight ship with two full-time managers and six chefs for three restaurants, with the remaining staff working part-time. "We had two staff leave over the course of the year and we did not replace them."

He believes the capital has too many restaurants and as a result the industry will suffer. "I think Edinburgh has hundreds of restaurants. We are so service-orientated that we can't not be affected."

Gorging on special offers

FOR those with money there has never been a better time to be gluttonous, with restaurants across Scotland slashing prices in an effort to tempt diners.

The website 5pm.co.uk, which reveals restaurants' special deals, points out that Soho restaurant in Glasgow is today offering two courses plus a complimentary cup of coffee for 5.95. In some other restaurants drinks, from cocktails to coffees, are being offered free of charge. Channings, in Edinburgh, for example, has cut 10 off its three course la carte dinner menu and included a glass of house wine for 20 per person.

The new Hotel Du Vin in Edinburgh has launched "two thousand and wine", which gives two people two courses each, with coffee and a bottle of wine for a total price of 29.

Other restaurants, such as Gamba, the celebrated seafood restaurant in Glasgow, have launched loyalty cards giving points that can be traded for free courses, meals or wine.

Takeaway pizzas and pies among life's little luxuries

CONSUMERS are exchanging restaurant tables for takeaways boosting the profits of Domino's Pizza and Greggs, according to figures released yesterday.

The pizza delivery firm, which has 553 shops in the UK and Ireland, said people were looking to "trade down" from going out for a meal but were unwilling to give up entirely on luxuries.

Sales for the year to 28 December were up 18.4 per cent to 350.8 million, with the company attracting more customers during the current credit crunch.

Meanwhile Greggs saw sales rise in December by 5.3 per cent.

Yesterday, a spokesman for Domino's said: "People still want a treat but they are looking for ways to get that treat at a lower price.

"On occasions when they might go for a meal, what we are seeing is they are getting a bottle of wine from the supermarket and ordering a pizza."

She said the company's sponsorship of the Saturday night ITV show Britain's Got Talent had also proved successful, with sales perceptibly rising around the time the programme was broadcast.

Meanwhile, Greggs delivered its Christmas trading figures yesterday showing its cheaper snacks remained popular with customers.

The Newcastle upon Tyne-based group, which has more than 1,400 stores in the UK, saw like-for-like sales rise 5.3 per cent in the four weeks to 3 January.

The average Greggs customer spends about 2 a visit and chief executive Ken McMeikan said the chain's quality and low prices gave it a head start on rivals.

He said: "The underlying factor out there is that people are looking at the amount of money in their pocket and looking for the best value."