Carluccio’s, the iconic fast-casual Italian restaurant chain, is actively seeking a buyout, according to reports from the Financial Times today.
It was reported earlier this month that the company had retained the services of KPMG to “assess its options” for the future, but at the time company representatives denied Carluccio’s was in trouble, describing the chain as “largely debt-free,” and able to continue operating in an increasingly unstable market.
Nevertheless, the company has seen better days, and though most recent filings show a revenue rise of 2.7 percent to £140 million for the year to 25 September 2016, pre-tax profits for that same period fell a drastic 81 percent to just £982,000 for the same period. At the time, the company cited “exceptional” costs to explain plummeting profits, but it is quickly becoming apparent that these costs are now the norm for chains in this sector. Byron, Jamie’s Italian, Strada, and Prezzo are all major players in the sector who, until recently, seemed too big to fail. The reality appears quite the opposite.
A private equity executive, who was approached by KPMG regarding a potential purchase of Carluccio’s, provided perhaps the most concise assessment of the treacherous landscape that is threatening the UK’s high street chains in their rejection of the proposal. The person was quoted by the Financial Times as saying:
This is a desperately difficult sector due to higher business rates, wage costs increasing, difficulty to recruit staff in light of EU labour going home, higher food costs [and] overcapacity in the market following the huge number of new restaurant expansions in last three years.
It seems, therefore, that the very nature of the chain model is at the core of the issue these businesses face in today’s climate. The financial burden of dramatic increases in the business rates bills across so many premium high street locations, and increased costs of goods, combined with a consumer base who is expecting another year of negative-to-zero real wage growth, means chains have, over recent years, backed themselves into a position where their comparatively small margins are no longer mitigated by volume of sales — which were a given in a favourable market.
Carluccio’s may be shaping up as the latest victim of circumstance, but it’s unlikely to be the last.
- Carluccio’s puts itself on the menu as it raises for sale sign [Financial Times/paywall]