Carl Mortished: Why mid-market restaurant owners have had their chips

For many Londoners, the big question that preoccupies us while we wait for trains, fight for school places and search for reliable cleaners is whether the capital has finally reached peak burger.

The price of a few ounces of ground beef, grilled and stuffed in a bun with mayo and a pickle is all about where we are. I’m not talking fast food, Big Macs or Whoppers, nor the silly chefs in Camden or Chelsea who, in search of media sensation, create a thousand-pounder, adorning the patty with truffles and gold leaf.

I’m talking about the mid-range restaurants that depend on the patronage of families and working couples, say Byron or Haché. A few years ago, I thought we had scaled Everest when the priciest burger on the menu flirted with £10 but now we are moving rapidly up the double-digit scale.

Unfortunately, for restaurant owners, burger inflation is not translating into profits. Rather, the margins are crumbling like a brioche bun.

In January, Byron had to seek protection from its creditors, filing for a company voluntary arrangement followed by Jamie Oliver Restaurant Group. Byron is closing up to 20 restaurants and up to 12 Jamie’s Italian sites will close their doors. Prezzo, the pizzas chain bought four years ago by the private-equity firm TPG for £300 million may close 100 sites.

The key to the CVAs is that it gives the restaurant operators a lifeline, allowing them to reduce or escape, albeit temporarily, huge rental payments. Occupier costs, including rent and business rates, account for about a third of a typical London restaurant’s turnover with food costs and wages each taking 30%.

That leaves a mere 10% margin for the operator’s profit and you can see it doesn’t take much upward movement in the rent or the price of an avocado to wreck the fragile economics of mid-market catering, tipping the tables of comfortable dining to create a ghastly mess on the floor.

As usual, the financiers made it all possible. Private equity roared into the restaurant trade, creating debt-funded vehicles that bought up moderately successful restaurant businesses. These then went on the rampage buying up sites.

Simon Chaplin, senior director at Christie & Co, the real estate agency, reckons the excess demand caused West End restaurant rents to double in many instances. A typical rent for a mid-range restaurant in central London might be £200,000, on top of which the operator could spend a further £750,000 fitting out the premises.

Councils have taken the hint from soaring rents to double rateable values. Add other start-up expenses, rising staff costs and the restaurant will find itself running just to stand still for many months. It is surely a moot point, in the current environment, whether the start-up ever gets motoring.

Landlords have probably lost the upper hand but we have been here before. Lease premiums — cash sums a new occupier would pay the former tenant just to take over the premises — are disappearing but the question is whether we go back to the bleaker world of rent-free periods with landlords offering bribes to tempt new tenants.