Crisis hits restaurants as diners decide to stay home

Restaurants are closing at the fastest rate in decades as people economise on eating out during the recession, industry figures reveal.

Data given to The Independent shows the recession has badly bruised food outlets, with diners spending £330m less on sit-down meals and takeaways in the first half of this year. In the £19bn-a-year sector – whose margins average 5 per cent – independent restaurants have been worst affected, while branded groups have lured customers with half-price offers that have hit profits.

However, even branded chains have been quietly closing outlets, shedding staff and "re-engineering" meals with smaller portions or cheaper ingredients, according to the British Hospitality Association. Industry experts said the restaurant business was experiencing its toughest time since the 1980s.

Some 324 eating-out businesses went under in the first six months of the year, more than double the 164 two years ago, according to insolvency figures from PricewaterhouseCoopers. PwC, which monitors the restaurant sector, predicted that closures would increase rapidly in the second half of the year because banks had given up hope of revenue-boosting summer weather.

The slump in spending has hit some of the most famous names in the business. In February, Antony Worrall Thompson closed four restaurants after he said Lloyds Bank had refused him a £200,000 overdraft extension and TV chef Jean Christophe Novelli placed two gastro-pubs in administration. In October, Tom Aikens shut the business that ran his eponymous Michelin-starred restaurant and another in Chelsea, London, although they were controversially brought back, to the disgust of suppliers left with large debts.

The decline has slammed the brakes on almost 20 years of strong growth in eating out, which was only dented in 2002 and 2003 after the dotcom crash and the 11 September terror attacks.

Horizons, a specialist restaurant researcher, said that in the first half of the year spending in table service restaurants fell 3.9 per cent to just over £4bn compared with last year. Spending at "quick service restaurants" – fast food outlets, takeaways and cafes – fell by 3.3 per cent, from £5bn to a little over £4.8bn.

Horizons' managing director Peter Backman said he was surprised the closures had not been greater. He said: "It's going to get really nasty in the restaurant sector now. Everybody is talking about reduced trading weeks. Monday to Thursday are quite empty. Lunchtimes in business areas are down; Sundays are down. Saturday is increasingly the day that will prove whether restaurants stay in business."

Customers are still spending in chains such as Pizza Express, Zizzi, and Strada by taking advantage of "2 for 1" offers, but these have masked the full extent of the pain in the industry and raised the pressure on independents.

According to PricewaterhouseCoopers the number of dining firms going out of business in the first quarter of this year was 186, two and half times the 72 in the first quarter of 2007. In the second quarter of this year insolvencies slowed to 138.

Stephen Broome at PricewaterhouseCoopers, said: "We think it's because now the real basket cases have fallen by the wayside lenders have taken a more supportive stance towards the sector, particularly at the time that everyone was talking about a barbecue summer and staycations.

Asked if the downturn was worse than the early 1990s, Miles Quest, of the British Hospitality Association, said: "From anecdotal evidence, it's worse. The restaurants that survive this recession will offer outstanding value."