Prezzo shuts 46 restaurants as rising costs bite

High-street pizza chain Prezzo is closing nearly a third of its restaurants after struggling to recover from the damage done by Covid, as experts say firms will have to explore every option to survive the ongoing challenges.

Rising costs across utility bills and food prices have forced the Italian business to axe 46 of its loss-making sites across England and Scotland in a bid to stay afloat.

The group said energy bills have more than doubled, the cost of spaghetti has risen 40%, pizza sauce has gone up by 38%, dough balls are 15% more expensive and even mozzarella slices have increased in price by 18%.

Prezzo said the model wasn’t sustainable and is now operating with 97 restaurants following a similar move two years ago where 22 restaurants were closed.

More than 800 staff will lose their jobs, on top of the 200 who were let go in 2021. Remaining sites will be clustered in busy shopping areas and key tourist hotspots to maximise their chances of success.

Dean Challenger, chief executive of Prezzo, said the past three years had “been some of the hardest times” he had ever seen for the UK high street, and he was proud of Prezzo’s resilience.

“But the reality is that the cost-of-living crisis, the changing face of the high street and soaring inflation have made it impossible to keep all our restaurants operating profitably,” he added.

Dough problems

Restaurant chains have been hit particularly hard in recent years as the effects of the pandemic continue to wreak havoc on the hospitality sector. Covid lockdowns forced the closure of stores, some for months on end, while footfall hasn’t recovered. 

In the past year, the war in Ukraine has triggered a cost-of-living crisis as energy bills soar and the knock-on effect of rising food and drink prices has meant problems sourcing goods and lower footfall from customers reluctant to splash out.

New figures by Local Data Company show the number of casual-dining outlets has fallen 13% across the UK in the past few years. 

The Restaurant Group, which owns Frankie & Benny’s, said last month it is to shutter 35 of its worst-performing sites.

Prezzo’s woes are a “clear example of the economic fallout of prolonged high inflation”, said Tom Pringle, joint head of restructuring at law firm Gowling WLG.

“Huge rises in the costs of energy and food are eroding trading margins, and simultaneously making it difficult to pass these costs on to customers who are seeing the same pressures at home,” he said.

French connection

With cash running out, a change in customer eating habits to contend with, plus multiple other headaches, some businesses are having to reshape their models entirely to survive, experts told AccountingWEB.

“Any reserves were used up and now there is nothing left to bolster them through hard times,” said Della Hudson FCA, of Minerva Accountants. “Most restaurants increased prices following Covid in order to recover those losses but there is still a reduced appetite for eating out and charging more for an optional luxury hasn’t helped.”

While independent restaurants frequently hit the wall around the two-year mark, chains have greater professional support making it rare to witness the current struggles, she said.

“One suggestion is for UK restaurants to adopt the old French practice of two businesses utilising the same premises,” she said. “It used to be common for one business to operate a cafe during the day and another to operate a restaurant in the evening. This makes the most of the fixed costs but without exhausting owners.”

She pointed to how many takeaways are thriving, and how a big number of fast-food outlets are making half their sales through delivery during peak times.

“This is a change to the industry brought about by Covid,” Hudson said. “Dining habits have changed, which suits cheaper nights in during tough times.”

Innovate to survive

Hospitality entrepreneurs are increasingly turning to technology to help survive the business challenges, added Glenn Collins FCCA, head of technical and strategic engagement at the ACCA. “Our members are highlighting that, while they are seeing an easing on staffing pressure and high wage inflation, energy and food inflation are driving up costs and customers are very sensitive to any price increases,” he told AccountingWEB. “However, those that continue to plan, innovate and flexibly use data to manage their businesses are doing well.”