Private equity loses its appetite for London’s restaurants

Rising costs and staff shortages slow down ‘giddy pace’ of expansion.

The pace of restaurant openings in London has slowed in the past year, as a wave of private equity funding appears to have run out of steam.

Net openings tracked by the Harden’s London Restaurant Guide fell by 12 per cent, to 109, in the year to September, after a small drop in the number of openings and a larger rise in the number of closures. Eighty-four restaurants closed in the 12-month period — the third-highest number of closures on record in a single year, according to Harden’s - writes

Peter Harden, who has compiled the guide for the past 26 years, said “everyone in the trade has been amazed” at the “giddy pace” of restaurant openings in recent years. But he added that the trend now appears to be slowing down, saying that while investors saw restaurant concepts as easily scaleable, they had created a “conveyor belt that has been spitting product out too quickly and there is potentially a glut of supply now building up”.

He pointed to rising business rates, rents and higher costs for food imports, as well as Brexit -related staff shortages to explain the closures, which he said included some unlikely names.

Companies have also had to grapple with higher employment costs following the introduction of the national living wage and pension auto-enrolment.

“There are really quite a lot of quite good restaurants which are closing at the moment,” Mr Harden said, citing Grain Store in King’s Cross and Magdalen, near London Bridge. Chef Mark Hix’s eponymous restaurant in Mayfair also closed at the end of last month.

One private equity financier and director of several restaurant chains agreed, saying there had been a “massive expansion” that was now coming to an end. “A lot of people in private equity firms have made a lot of money out of it, and the music has begun to stop,” the director said, before predicting a “shake-out” similar to what has happened in the gyms market, where “the guys at the top and bottom keep going but the guys in the middle get mullered”. Many private equity-backed restaurants have struggled to differentiate themselves in an increasingly crowded market. Prezzo, the TPG-owned Italian restaurant chain, appointed property agents to explore the sale of 27 of its restaurant leases in July, as it put a stop to new openings — a move that was widely seen as a tacit admission of a challenging trading environment. But the company is looking to open between 6 and 10 branches in the coming year. The chain was taken private two years ago, in a deal that valued the company at £304m. Cote Brasserie, which is owned by BC Partners, has also seen its profits slip. The company posted profits before tax of £10m this year, compared with £13.9m last year, according to the company’s accounts. This year, the business has improved, a person close to the company said. BC Partners bought the chain two years ago for £250m. The annual Harden’s guide is compiled from a survey of 7,500 diners, who submitted 50,000 reviews, as opposed to the Michelin rankings, which are determined by professional critics. Harden’s tracks restaurants with three or fewer branches.

In the latest Harden’s guide, published on Friday, River Café overtook Sexy Fish for the title of the most overpriced restaurant, while the new outposts of The Ivy and Heston Blumenthal’s Dinner were among the high-profile names panned by reviewers.

Read also: Cinderella comes to the Compass Theatre this Christmas with a competition

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