The death of the high street.
Discussion
Brooking10 said:
Helicopter123 said:
I stand corrected, Brexit again to blame then. It really is an appalling act of self inflicted economic suicide.
And yet 1 in 3 are set to vote for Farage.
Shocking.
Is there any sort of suicide which isn’t self inflicted ? And yet 1 in 3 are set to vote for Farage.
Shocking.
PurpleTurtle said:
Really?
1) It's a British-based Italian restaurant chain which made big of the fact that it used genuine Italian sourced ingriedients. Those have increased in price since he EU referendum as a direct result of the fall in the value of the Pound against the Euro. Surely a significant dent in their already slim margin?
The food on the plate typically represents around 30% of the cost of running a restaurant. 1) It's a British-based Italian restaurant chain which made big of the fact that it used genuine Italian sourced ingriedients. Those have increased in price since he EU referendum as a direct result of the fall in the value of the Pound against the Euro. Surely a significant dent in their already slim margin?
Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
sparkythecat said:
The food on the plate typically represents around 30% of the cost of running a restaurant.
Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
“Only 4.5%”Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
I suspect like several other restaurants and retailers, the dash for growth has brought about the collapse.
With many new entrants piling in over the last 7 or so years, they triggered competition for sites, which caused rents to inflate. Now, they are suffering from that rental growth.
Since business rates are a hypothetical rent, based on market tone, the leap in RV after the last revaluation means that costs increases significantly, Add the fact that the UBR increases every year and the fixed costs have probably increased by 10% or 15%.
Most of the casualties are in the mid market, which sees the greatest competition. There is little brand differentiation and customers are not that loyal or aware of what makes you different to the competition (if at all).
Margins are thin, older units need refurbishing but there is no cash to do so, in which case they then borrow.
Add to that, most are leasehold, so have little value - the book value of your depreciating leases is not a lot. You can't therefore use your real estate to gear up, because your 25 year lease has a premium value of bugger all.
Crap business model all round.
With many new entrants piling in over the last 7 or so years, they triggered competition for sites, which caused rents to inflate. Now, they are suffering from that rental growth.
Since business rates are a hypothetical rent, based on market tone, the leap in RV after the last revaluation means that costs increases significantly, Add the fact that the UBR increases every year and the fixed costs have probably increased by 10% or 15%.
Most of the casualties are in the mid market, which sees the greatest competition. There is little brand differentiation and customers are not that loyal or aware of what makes you different to the competition (if at all).
Margins are thin, older units need refurbishing but there is no cash to do so, in which case they then borrow.
Add to that, most are leasehold, so have little value - the book value of your depreciating leases is not a lot. You can't therefore use your real estate to gear up, because your 25 year lease has a premium value of bugger all.
Crap business model all round.
Labradorofperception said:
I suspect like several other restaurants and retailers, the dash for growth has brought about the collapse.
With many new entrants piling in over the last 7 or so years, they triggered competition for sites, which caused rents to inflate. Now, they are suffering from that rental growth.
Since business rates are a hypothetical rent, based on market tone, the leap in RV after the last revaluation means that costs increases significantly, Add the fact that the UBR increases every year and the fixed costs have probably increased by 10% or 15%.
Most of the casualties are in the mid market, which sees the greatest competition. There is little brand differentiation and customers are not that loyal or aware of what makes you different to the competition (if at all).
Margins are thin, older units need refurbishing but there is no cash to do so, in which case they then borrow.
Add to that, most are leasehold, so have little value - the book value of your depreciating leases is not a lot. You can't therefore use your real estate to gear up, because your 25 year lease has a premium value of bugger all.
Crap business model all round.
You’re right.With many new entrants piling in over the last 7 or so years, they triggered competition for sites, which caused rents to inflate. Now, they are suffering from that rental growth.
Since business rates are a hypothetical rent, based on market tone, the leap in RV after the last revaluation means that costs increases significantly, Add the fact that the UBR increases every year and the fixed costs have probably increased by 10% or 15%.
Most of the casualties are in the mid market, which sees the greatest competition. There is little brand differentiation and customers are not that loyal or aware of what makes you different to the competition (if at all).
Margins are thin, older units need refurbishing but there is no cash to do so, in which case they then borrow.
Add to that, most are leasehold, so have little value - the book value of your depreciating leases is not a lot. You can't therefore use your real estate to gear up, because your 25 year lease has a premium value of bugger all.
Crap business model all round.
It’s an unholy trinity of prop costs, input costs and consumer attitudes all hitting at once.
Same recipe, pardon the pun, right across the industry.
sparkythecat said:
PurpleTurtle said:
Really?
1) It's a British-based Italian restaurant chain which made big of the fact that it used genuine Italian sourced ingriedients. Those have increased in price since he EU referendum as a direct result of the fall in the value of the Pound against the Euro. Surely a significant dent in their already slim margin?
The food on the plate typically represents around 30% of the cost of running a restaurant. 1) It's a British-based Italian restaurant chain which made big of the fact that it used genuine Italian sourced ingriedients. Those have increased in price since he EU referendum as a direct result of the fall in the value of the Pound against the Euro. Surely a significant dent in their already slim margin?
Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
I don't think the public at large realise how thin things are for a lot of household names on the High St.
Helicopter123 said:
janesmith1950 said:
I doubt the net margin was particularly high in the first place. An overall increase in costs of 4.5% could easily be the difference between viability or otherwise.
Straw that breaks the camels back...PurpleTurtle said:
J Sainsbury, a 150yr old company which pulls in revenues of £28 billion every year operates on a Gross Margin of ~%6.25, by comparison.
I don't think the public at large realise how thin things are for a lot of household names on the High St.
Supermarkets are legendarily low margin.I don't think the public at large realise how thin things are for a lot of household names on the High St.
And they also don't reveal their true COGS (i.e. raw materials which is what we are talking about here).
In Sainbury's case it includes all the costs of the stores including labour and rent (both of which are big)
From the annual report, "Cost of sales consists of all costs that are directly attributable to the point of sale including warehouse, transportation costs and all the costs of operating retail outlets."
Restaurant Group is a better comp. https://www.trgplc.com/sites/default/files/reports...
Their "gross" margin is 12% but they DO break out F&B costs which are 22% of sales (page 84).
In the end Jamie's Italians were all in super-prime locations, with no atmosphere and very limited covers, selling the same stuff as Prezzo et al. for 50% more.
The restaurant sector is getting seriously tough, the larger chains are finding it harder too because changing is trickier.
But one of the biggest costs is staff wages, generally restaurants always have run on tight margins, but they have managed because they have lots of part time staff who do it for pocket money.
Jamie's had 1300 staff for 22 restaurants, which shows just how much of the overheads is labour. We saw a 4.9% increase in the living wage this year alone, that, in a sector where nearly 50% of your overheads are wages and net profit is expected to be 5% can have a big hit.
My brother is a head chef, he says he runs at 40% labour, 30% stock and 30% rates and rent, gas & electricity etc.
He said no matter how much you try and lower labour costs, which is the cost that is that is always too high, it is impossible if you want to keep the level of service. You can't reduce quality and you can't reduce rent and rates, electricity and gas, insurance etc.
The only way you can cover these rises is to put prices up, however, a small increase of say 10% doesn't really touch the sides and more often than not you lose turnover when you do it, so has a negative effect and makes things even worse.
We are living in a world where every one wants things cheap, however, they want quality too, they just no one is prepared to pay what things really cost these days.
This is why an increase to £10 an hour, £23,400 pa for a 45 hour week, would see hundreds of thousands of businesses collapse and unemployment at a level we have never seen before, unless it was managed in over a long enough period that would not be a shock. Which, is what we are doing anyway.
The lack of understanding on how tight businesses are run from those who don't run them is scary.
But one of the biggest costs is staff wages, generally restaurants always have run on tight margins, but they have managed because they have lots of part time staff who do it for pocket money.
Jamie's had 1300 staff for 22 restaurants, which shows just how much of the overheads is labour. We saw a 4.9% increase in the living wage this year alone, that, in a sector where nearly 50% of your overheads are wages and net profit is expected to be 5% can have a big hit.
My brother is a head chef, he says he runs at 40% labour, 30% stock and 30% rates and rent, gas & electricity etc.
He said no matter how much you try and lower labour costs, which is the cost that is that is always too high, it is impossible if you want to keep the level of service. You can't reduce quality and you can't reduce rent and rates, electricity and gas, insurance etc.
The only way you can cover these rises is to put prices up, however, a small increase of say 10% doesn't really touch the sides and more often than not you lose turnover when you do it, so has a negative effect and makes things even worse.
We are living in a world where every one wants things cheap, however, they want quality too, they just no one is prepared to pay what things really cost these days.
This is why an increase to £10 an hour, £23,400 pa for a 45 hour week, would see hundreds of thousands of businesses collapse and unemployment at a level we have never seen before, unless it was managed in over a long enough period that would not be a shock. Which, is what we are doing anyway.
The lack of understanding on how tight businesses are run from those who don't run them is scary.
sparkythecat said:
The food on the plate typically represents around 30% of the cost of running a restaurant.
Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
Add increase in minimum wage, increased pension, business rates, power/gas, insurance, rents that is a lot of only 1,2,3 or 4 percents, with some compounding.Since June 2016, the pound has fallen around 15% against the euro.
This would have put up overall restaurant running costs by only 4.5% over a three year period.
The business must have been in a poor state anyway very if that was enough to finish it off.
Brexit uncertainty, increased competition, shrinking disposable income and perceived poor value attacking from the income end.
Jamie's in Richmond was sited three doors down from Zizzi's, which has tastecard and various other offers. The staff in Jamies were aloof and condescending, in Zizzi's the staff churn is low and they interact well with customers. The food quality in Jamie's is on par with Zizzi's. Given that, it's no surprise it went, it simply offered nothing more and cost more - consumers are much more savvy and many eat out on deal now when looking at the mid-level restaurant group.
Edited by coldel on Thursday 23 May 11:24
Burwood said:
I think rents are too high and rates are ridiculously high. At some points landlords will have to reset their expectations.
Hopefully, as the F&B boom settles down we will see a flattening of rents. I know rental growth has slowed considerably, and in real terms i.e. open market lettings, declined. That means rent reviews will be nil or nominal. The problem lies with occupiers who are tied into RPI leases, even with a 2% and 5% collar and cap, these will tick upwards and with little or no income growth, and with wages and other fixed costs increasing, eat into margins. Rates are what they are - a reflection of rent at a given moment in time. It will be interesting at the next reval to see if rateable values actually fall, if the market rents have done likewise at the antecedent date.
Labradorofperception said:
Hopefully, as the F&B boom settles down we will see a flattening of rents. I know rental growth has slowed considerably, and in real terms i.e. open market lettings, declined. That means rent reviews will be nil or nominal. The problem lies with occupiers who are tied into RPI leases, even with a 2% and 5% collar and cap, these will tick upwards and with little or no income growth, and with wages and other fixed costs increasing, eat into margins.
Rates are what they are - a reflection of rent at a given moment in time. It will be interesting at the next reval to see if rateable values actually fall, if the market rents have done likewise at the antecedent date.
Agreed.Rates are what they are - a reflection of rent at a given moment in time. It will be interesting at the next reval to see if rateable values actually fall, if the market rents have done likewise at the antecedent date.
It is the long-term upward-only rent review leases that need to be flushed out of the portfolios.
No one is signing these today but it takes time for the existing ones to stop hurting.
Hoink said:
An interesting challenge for our local city (Newcastle) is going to be the proposed clean air tax. It's currently bring debated but essentially there are two options:
- £12.50 charge for cars in an emissions type zone similar to London
- £1.70 to use of the bridges to cross the River Tyne.
Both are very unpopular and have taken in just under 20,000 comments via the consultancy. This is reported as being a record for such schemes. The council are arguing they have no choice and are blaming the government.
I suspect they actually have no intention of the zone type charge and will introduce a toll for the bridges, trying to give the impression that "it could have been worse".
I think all this will do is force more people to use the retail parks and Metro Centre.
It will be interesting to see what happens and how it pans out over time. It will certainly impact the shops in the city centre as a lot of places do not have good public transport links unless you're on the metro line.
- £12.50 charge for cars in an emissions type zone similar to London
- £1.70 to use of the bridges to cross the River Tyne.
Both are very unpopular and have taken in just under 20,000 comments via the consultancy. This is reported as being a record for such schemes. The council are arguing they have no choice and are blaming the government.
I suspect they actually have no intention of the zone type charge and will introduce a toll for the bridges, trying to give the impression that "it could have been worse".
I think all this will do is force more people to use the retail parks and Metro Centre.
It will be interesting to see what happens and how it pans out over time. It will certainly impact the shops in the city centre as a lot of places do not have good public transport links unless you're on the metro line.
Newcastle based myself. I fear the city is on a slippery slope to death, this new toll wont help. I'm surprised that they haven't either limited parking time or introduced charging at the Metrocentre. Tolls over the Bridges will just re direct traffic onto the A1.
Newcastle use to be beautiful, now boarded up shops, litter everywhere, loads of homeless people. I dont really like taking my children into Newcastle anymore. Sad decline.
Just back on topic of food. I'm glad to see that back of the likes of the big chains. I'd much rather hunt out a local independent restaurant. Yes you pay a little more but I feel the money stays local (hopefully) Usually much better service too.
It should also be noted that some landlords will also want a share of you profit too.
Edited by 996owner on Thursday 23 May 11:38
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