Wagamama owner The Restaurant Group to close sites amid cost-of-living pressures
Wagamama owner TRG is closing dozens of outlets as profits plunge after high costs wipe out booming sales
- The Restaurant Group said it would close about 35 locations over the next two years
- Closures will be achieved through a mix of sales, lease expirations and termination clauses
- Higher food, beverage and energy costs have put serious pressure on the company’s margins
The Restaurant Group will close dozens of stores after annual losses climb 70 percent amid rising inflationary pressures.
The owner of Wagamama and Frankie & Benny’s said it would close about 35 “potentially loss-making” locations over the next two years, shrinking the leisure division about 30 percent.
It plans to achieve this through a mix of sales, lease expirations and termination clauses, while converting a further three establishments into Wagamama restaurants.
Closures: Wagamama’s parent company The Restaurant Group said it would close about 35 “potentially loss-making” sites over the next two years
Restaurant Group told investors on Wednesday that the measures are being taken in response to a “difficult macroeconomic environment” for the hospitality industry.
In addition to higher food, drink and energy costs, the company’s margins are under pressure from labor shortages, forcing the company to raise wages to try to attract staff, and the latest increase in the UK’s national minimum wage.
As the company’s future revenues and trading are expected to be impacted by cost-of-living pressures for the foreseeable future, it has taken an exceptional charge of £117.5 million in its latest results.
Consequently, annual legal losses at the London-based company, which also runs Tex-Mex chain Chiquito, rose from £40.3m in 2021 to £68.5m last year.
This is despite revenues rising by nearly £250m to £883m due to the easing of lockdown rules.
Restaurant Group saw demand hit in early 2022 by government guidelines encouraging people to work from home following the rise of the Omicron variety.
But it noted that the division’s sales recovered faster than expected in the second half of the year after travel restrictions eased again, allowing Britons to fly abroad more easily and commute to work more regularly.
While rising inflation gradually began to hurt consumer spending, the company said its pubs and Wagamama locations outperformed the broader market.
“We delivered a strong operational performance this year in a market that continues to present some headwinds for casual restaurant operators,” said CEO Andy Hornby.
“Current trading is very encouraging to the credit of our teams who continue to ensure our customers have the best possible experience.”
Nevertheless, The Restaurant Group shares plunged 13.4 percent to 39.2 pence on Wednesday morning, making it the worst performer on the FTSE All-Shares Index.
Mark Crouch, an analyst at trading platform eToro, said the results would “leave a bad taste in the mouth” of shareholders who were already reeling from the fall in value of their investment over the past year.
On the company’s outlook, he added: “Money is tight for many people and costs remain high, both of which could act as anchors for growth in the near future.”
Activist investor Oasis Management has called for a major shake-up at The Restaurant Group, including a leadership review, which it has accused of leading “strategic stagnation.”
It wants a strategic review of the company led by an independent bank and a seat on the board of directors. The Restaurant Group flatly rejected both proposals.