Decline of Gourmet Burger Kitchen – pre Brexit warning or market trend?

It has recently been announced that Gourmet Burger Kitchen (GBK) has reported a loss of £47m and as a consequence has enlisted the services of a specialist Insolvency Firm, Grant Thornton. It is understood that they have brought in accountants, Grant Thornton, to advise in connection with a Compulsory Voluntary Arrangement (CVA) for underperformance of the business. GBK are proposing closure of approximately 1 in 5 of their 80 stores leaving around 250 jobs at risk.

This news follows an apparent trend in the casual dining market which has recently seen Carluccio’s, Gaucho, hummus bros, Prezzo, Jamie’s Italian and Byron having been forced to restructure in a bid to stay solvent.

It would appear that there has been a huge growth in the casual dining market with restaurant numbers up 15% overall since 2010. One question to ask is whether this is a worrying trend in line with other business sectors, caused by potential uncertainty surrounding Brexit or whether GBK has failed in itself to run its business.

One thing that appears to be clear is that the rapid growth of the casual dining market has in itself pushed up rents and that has impacted on rateable values. This extra tax coupled with rising food prices and staff costs including national minimum wages have created, as Alex Probyn president of the UK expert services and real estate advisor Altes Group said, “a lethal cocktail as margins are squeezed”.

We are all aware of the uncertainty surrounding negotiations towards Brexit including transitional arrangements and the terms of the deal which will have an undoubted impact on overall expenditure.

One issue with GBK may be that it has simply been around too long and has not responded to market conditions. GBK has been in operation for approximately 17 years and whilst it would be easy to say that the casual dining market has grown substantially, there are other success stories out there. Although there is no clear news, it would appear that the burger chain Five Guys is continuing to expand having only recently opened its 82nd UK branch in Canary Wharf. Its simpler format may be the chart to success.

Nevertheless, rather predictably, market trends are showing that all forms of casual dining are sorting out the strongest from the weakest and there may be effectively a realignment where the fittest survive.

A CVA is usually a very useful way of taking control of a potentially insolvent situation whereby the body of Creditors agree that they will receive a lower percentage of debts due to maintain the amount that they are receiving rather than lose the whole lot or prevent the company going into Administration or worst still Liquidation. This would have a significant impact not only on the company itself but also on the individuals and jobs.

Essentially, the market will resettle itself and reorganise itself however, with other business sectors also failing, it is unlikely that the demise of casual dining can be placed solely (as has been suggested with retail businesses) on the emergence of the internet. The hard facts appear to be that we as the paying public are not getting out in enough numbers to service the saturated casual dining market. The degree of financial uncertainty over the next few months can only exaggerate the position. It will be very interesting to see what the figures are immediately post Christmas (traditionally a peek in the casual dining market around the Christmas holidays from December).

There is the prospect that trade will drop off in the traditionally slack period between January to March in any event and this will be further exaggerated by the Brexit situation.

It may be that GBK could not have done anything different but it is simply one extra player in an already saturated market. Only time will tell.

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