Restaurants feel the squeeze

Not even its vastly expensive burgers will be enough to rescue Clapham House next year. The restaurant operator slashed its growth expectations for 2008 on Monday, citing a consumer spending slow-down, and along with another gloomy update from Regent Inns it was enough to send share prices plunging across the leisure sector.

Last Updated: 31 Aug 2010

Clapham House, the company behind the Gourmet Burger Kitchen chain (plus lesser- known brands like Bombay Bicycle Club) said growth in 2008 and 2009 would be ‘significantly below its original expectations’, sending its share price plummeting by more than 40%.

The main culprit has been the under-performing Tootsies, a chain of eleven restaurants (mostly in shopping centres). Previously the most profitable part of the group, the chain has been feeling the squeeze in recent weeks thanks to ‘pressure on UK consumer spending’, according to the board. It’s now going to scale back its original expansion plans for the chain, citing concerns about the ‘uncertain economic outlook, potential food cost inflation and recent increases in rents’.

More bad news was soon to follow from a group operating in a slightly different part of the market. Regent Inns, owner of the Walkabout and Old Orleans chains, also sank like a stone, falling by 36% after issuing a profit warning. The company said punters are going out later and spending less, while the smoking ban and England’s failure to reach Euro 2008 would also hit sales. Regent even said it would ‘continue to look at corporate activity opportunities where we believe the business is well placed to deliver value through consolidation’ – which presumably means it’s open to offers.

As you’d expect, two profit warnings in one day sent prices down across the board, with Mitchells and Butlers, Whitbread and the Restaurant Group also taking a hit. The theory is that when we’ve all got less money to spend, we’re more likely to stay at home and eat, rather than shell out on restaurant meals.  Which is bad news for the likes of Regent, but great for the supermarkets...

More worryingly, it's one of the first clear signals that the effects of the credit crunch are not only being felt in the financial markets - it's also having a knock-on effect on consumer spending too.

The only upside for Clapham House is that at least GBK is holding up well – it’s planning to open another 18 of these next year (assuming it’s not gobbled up by a bigger competitor in the meantime). Just goes to show: they can take our cheap credit, but they’ll never take our chicken, camembert and cranberry burgers.

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