On Saturday 20 August, Bristol’s Casamia restaurant finished its final service after 23 years in business. “I’m 36 and most of my life has been Casamia,” says the chef-owner, Peter Sanchez-Iglesias, who, with his brother Jonray, turned what was previously their parents’ suburban Italian into a Michelin-starred destination. “But with my brother [who died in 2015, aged 32], I know life is short. Things can be taken away from you quickly and I’m not going to keep Casamia just to boost my ego. Nothing lasts for ever.”
Pre-pandemic, Casamia was “just breaking even”, struggling to hit the industry standard gross profit margin of 70%. That is not unknown in fine dining. Such labour-intensive treatment of costly ingredients for small numbers of guests is a financially precarious form of self-expression.
In the summer of 2020, Casamia underwent a “bold” relaunch intended to enhance its cutting-edge reputation and secure its future. Restyled as a dark, modish cocoon of loud music, lights and visuals, the dinner price increased from £119 to £180 (wine flight, £120), and to create a better work-life balance for staff services were cut to two lunch and three dinner sittings, running Thursday to Saturday. The plan was to make theatrical, 25-course menus of potato tempura, black garlic mayonnaise and pickled black garlic, or apple tart with smoked ice-cream, for just 16 people per service financially viable.
“We wanted more exciting food, to expand the ingredient selection and hit 70%,” says Sanchez-Iglesias, who encouraged the use of, for example, langoustines and sea urchins. “There shouldn’t be many boundaries in doing something creative. Because of the price, we should give everything to customers. I don’t want to be held back.”
For most of 2021, this reinvention worked. Pent-up pandemic demand exploded and Casamia, led by chef Zak Hitchman, was “super, super, super busy”.
That faded abruptly last winter. Christmas was disrupted by Omicron and in February the war in Ukraine began, meaning already rising fuel and food prices suddenly rocketed. A significant chunk of Casamia’s target audience began to think twice about blowing money on eating out. Sanchez-Iglesias was seeing occasional empty tables in the evenings, and worse. “We would have the odd Friday lunch where it was just two people booked.”
Casamia – which, in 2016, moved to Bristol’s regenerated harbour – had good weeks, but too many where it lost money, sometimes £200, £500 or even £1,000. “We can’t charge more,” says Sanchez-Iglesias. Reducing the price or adding more covers was not feasible. The situation was “getting worse and worse”.
In May, Sanchez-Iglesias announced Casamia would close and the site reopen as a new Italian restaurant. He hopes this trattoria will replicate the success of his other Michelin-starred restaurant, Paco Tapas, a bigger, busy, more casual operation with flexible pricing.
“You change or close,” says Sanchez-Iglesias. Larger fine-dining restaurants may “still make business sense with a 10%, 15% drop-off; every business is unique”. But with diners reining in spending, and energy and food costs spiking, smaller, niche restaurants are on a knife-edge. This is, says Sanchez-Iglesias, “the scariest it’s been since the 2008 recession. The whole industry at that level is under threat.”
Others are less gloomy. “Luckily, we’re fully booked and people are spending better than ever. We’ve increased prices but guests don’t seem fazed,” says one London restaurateur, anonymously lest they seem “arrogant”. That owner operates in a rarefied world of bills of £300-£500 a head. But word has it business in London is mostly robust. For six weeks earlier this summer, Ed Thaw had to close at lunch on Tuesdays and reduce midweek covers at his Shoreditch restaurant, Leroy. But only because he lacked staff. “There’s plenty of custom but everyone is struggling with recruitment.”
Last month’s trading update from D&D London, which operates more than 40 restaurants worldwide, was upbeat while noting an “uncertain economic backdrop”. Significant cost inflation (about 10% a year) has been “compensated by increased average spends” – and not just in London. D&D highlighted its Manchester and Leeds restaurants as strong performers.
Such contradictory experiences are standard in hospitality. D&D’s buying power and marketing reach is very different to that of a small independent restaurant, and the experience can vary significantly. If one restaurant agreed a fixed, three-year energy contract in 2021, it will be far better placed than its neighbour who renewed this year, doubling or tripling its bill. One chef, who preferred not to be named, told me they had mothballed a new restaurant until spring 2023 after the annual electricity bill at an existing smaller site leapt from £3,500 to £11,500. “Winter will be quiet and expensive. If you can wait, why wouldn’t you?”
Stark warnings of closures abound. The British Institute of Innkeeping has said energy bills could destroy many pubs. Businesses in big, draughty buildings that may make £50,000 annually (profits that owner-operators of small businesses often use to pay their “salaries”, as dividends) could see that profit disappear in gas and electricity costs. Procurement manager Regency Purchasing Group has warned of “hundreds of businesses forward-planning closures”, as energy contracts come up for renewal.
Arguably, the fallout has started. In July, the accountants UHY Hacker Young reported restaurant insolvencies had risen 64% year on year. Last month, it calculated that a record 60% of the UK’s top 100 restaurants are making a loss.
Some owners of healthy, successful businesses are opting out of this turmoil. In March, Aimee Turford and Alisdair Brooke-Taylor, who run the Moorcock Inn in Norland, West Yorkshire, announced that instead of renewing their lease they will leave the pub in January. The Moorcock is busy and acclaimed for its wood-fired, foraged and fermented food, but still reeling from the pandemic slog, enough was enough. “It was clear things were going to get worse before they got better,” says Turford.
The Moorcock has been packed since. “We’re very lucky that people are turning out,” says Turford. “Businesses I like have announced they are closing. Many friends are scared about the near future. These places deserve to be open. It’s not that their business model wasn’t good. There’s an avalanche of circumstances beyond their control forcing them into closure.”
Mapping the contours of that avalanche can be bewildering. We understand energy costs, but the way rising oil, gas and chemical prices contribute to increased food production costs – from transport and fertiliser to heating for barns and even the CO2 used to kill poultry – is an eye-opener for most diners.
The cost of animal feed, particularly grain-based feeds for poultry and pigs, has risen sharply due to the war in Ukraine. Poultry feed has shot up 70% since 2020, says the National Farmers Union. The Agriculture and Horticulture Development Board reports cattle prices are at record highs and sheep are selling at “significantly above the five-year average”. Pig prices surged in spring yet, incredibly, “have not reached the point where they cover estimated cost of production”. James Swift, owner of Monmouthshire charcuterie business Trealy Farm, says pig farmers are “falling by the wayside, left, right and centre”.
In June, the CGA Prestige food-service index recorded a fifth month of double-digit inflation in ingredient costs, with fruit, dairy and fats up more than 20% year on year. Chefs report crazier numbers: butter up 50%, lamb neck almost doubling in price. “It’s not just food costs,” says Turford. “It’s printer ink, paper for menus, plumber callouts, napkins. Every aspect has gone up.”
And then there’s staff costs. For too long the restaurant industry was sustained by cheap credit and cheap labour. Now, experienced staff are scarce and wages are rising fast. No one objects to that, at least not publicly, but it is another cost to absorb. From talking to owners, payroll is one of the most significant pressures, says Joe Lutrario, the deputy editor at industry website Big Hospitality. “Wage bills are spiralling and cutting into [profit] margins.”
Given the multitude of problems, the industry has been urging the government to intervene. And it has now announced a six-month scheme offering “equivalent support” to what households will receive with further unspecified help beyond that for “vulnerable industries”, which should include hospitality. Of the people I spoke to for this feature, before Liz Truss became prime minister, some called for a cap on commercial energy tariffs. To ease cashflow, almost everyone would like the Treasury to reduce the 20% VAT rate on restaurant sales, as it did during the pandemic. “It blows my mind there isn’t a break, given the pressures are probably greater,” says Alex Rushmer, co-chef-owner of Cambridge’s Vanderlyle.
Hospitality is gearing up to fight. “By definition, you’re an optimist if you’re in hospitality or you wouldn’t open a business,” says Candice Fonseca, owner of the award-winning Liverpool foodhall and restaurant, Delifonseca. After the pressures of Brexit and Covid, she views the current situation as “a cosmic joke”. Like many owners in the past two years, Fonseca has proven adept at overcoming challenging times. For example, Delifonseca has significantly expanded its corporate catering. “I’ll find a way to make my bits of business add up to something that works,” she says.
In July, McDonald’s crystalised the moment by increasing the price of its cheeseburger from 99p to £1.19, its first rise in 14 years. In hospitality, almost everyone is charging more. Prices went up by 9% in the year to July 2022, according to the Office of National Statistics, with further rises predicted. Larger chains may be able to hold price rises down around 5%, but, anecdotally, smaller independent operators have put dishes up by about 10%-15%.
Is it enough? “We haven’t put prices up as much as we should have,” says one owner. “Consumers are hesitant. There’s a ceiling on what someone will pay for a beetroot salad.”
Pre-pandemic, Delifonseca’s 140-cover restaurant was open from 8am until 9pm every day. Now it opens at 9am, and in August it was only open in the evening on Fridays and Saturdays. This is partly because “we can’t staff at the right level of expertise”, says Fonseca. But it’s also because she assesses there is not enough custom earlier in the week to justify opening. “As people cut back, weekday meals will go. Liverpool is about weekend celebration. People will find the money for Saturday night and Sunday lunch. Let’s focus energy there.”
The received wisdom in hospitality used to be that you pay rent every day, you should open every day. A high-street restaurant should sell hard at breakfast, brunch, lunch, afternoon tea and dinner, weaving itself into customer’s lives as a convenient utility. That may work in certain city centres, but, says Rushmer, you can be a busy fool: open all hours, incurring dangerously high overheads. “The idea that every restaurant can be everything to every consumer is ludicrous.”
Menu options may change and decrease, too. For now, Delifonseca has removed lamb from its Sunday lunch (too expensive), and for a while this year dropped salmon for sea trout, after salmon doubled in price. “You’ve got to price-watch constantly,” says Fonseca, particularly on short shelf-life items such as seafood.
Be it using coley instead of cod or more affordable cuts of high-end charcuterie, such substitutions are common. Wine lists are in constant flux, partly due to higher post-Brexit shipping costs, as everyone chases that holy grail of quality and value (look to Portugal, advises Fonseca).
The need to minimise waste is acute. In September, Delifonseca will reduce its choice of evening mains to five from eight, plus steaks. The aim is to produce more “refined” dishes without overburdening the chefs, but also to keep rigid control of ingredient costs and wastage. The larger the menu, the more difficult that is, particularly for independents serving local and seasonal ingredients, which may have to track prices from 50 to 100 small producers, all communicating in a variety of ways.
Fonseca is also frantically changing light fittings, rationalising fridge-freezer space and monitoring the air-conditioning to reduce energy use. Chefs are used to turning on every hob each morning. At Delifonseca, they are under orders not to. A high-temperature service oven, used for quick finishing jobs, now stays off until 30 minutes before service. “I’ve been walking past turning [gas hobs] off,” says Fonseca.
Suddenly, chef-owners want to talk about double-glazing. Fonseca is pricing up solar panels (“it didn’t use to stack up, but … ”), and at the 20-strong national bar-restaurant chain the Alchemist, managing director Simon Potts plans to remove “energy intensive” electric outdoor heaters from some venues this autumn, to gauge response. He would like the government to “take a position on it; similar to the Paris mandate, where air-conditioned stores must keep front doors closed”.
Despite these obstacles, new openings continue. The Alchemist has three planned into next year. Note: paper towels will replace electric hand-dryers in the toilets. “It’s a data-driven, controlled strategy,” says Potts, who is convinced the brand’s urban, professional, often child-free customers will still want to socialise.
Trealy Farm’s James Swift is “extremely pessimistic” about what 2023 holds for hospitality generally, but mid-pandemic he moved into supplying understaffed kitchens (charcuterie is a quick, easy serve) and pizza restaurants keen to add gourmet value to their toppings. Trealy Farm has been “extremely busy” ever since. “That market will persist,” he says.
Newly launched independents may have to dial down expectations. Breaking even for two years may constitute success. As one owner, surveying their latest opening, says: “We’re all right. Busy. We’re not really making any money but we’re alive.”
The sheer uncertainty of the moment is terrifying, but for some more than others. Previously, as a pub owner, Rushmer endured “sleepless nights because I didn’t know how many were coming in on Sunday or how much they’d spend”. At Vanderlyle, he and fellow head chef and co-owner Lawrence Butler have minimised those stressful variables in a smaller, more targeted endeavour.
Their plant-led restaurant is set up to serve 28 people four times a week. No meat means fewer volatile costs, tables for its set menu are pre-sold on Tock, eradicating no-shows and enabling Vanderlyle to buy exactly what produce it needs, with almost zero waste. The restaurant is not immune to external pressures. Since opening in 2019, the menu has had to increase from £55 to £75. “I’ve probably done six different financial forecasts in the last six months,” says Rushmer.
But quite low overheads, a streamlined workload and a loyal local following mean Rushmer’s “worst case scenario is we’ll get through this. I’m not saying it’s going to be easy but I’m confident.
“Possibly the next 24 months are going to be rough for hospitality – and for everybody else,” he says. Is Vanderlyle a low-risk model for the future? Rushmer won’t be drawn. He doesn’t want to preach. “What I will say is, at this moment, Vanderlyle is the right business for me.”