Job losses suggest recovery not here yet

LOOK DOWN ANY High Street and you’ll see enough places to eat or take food away that you will be asking yourself, “does nobody cook any more?” All that may be set to change, as restaurants start to admit they are in trouble.

The Italian restaurant chain Prezzo is the latest business to announce it is having problems surviving in the present economic climate. Job losses and insecurity will do nothing to help an economy dependent on domestic spending to grow.

Prezzo has entered into a Company Voluntary Agreement (CVA) – a plan which admits that it is having problems but is trying to get through them and stay trading. Prezzo will be closing around one third of its stores: 94 outlets will go, leaving 208 open. Among the restaurants closing are all 33 which operate as Tex Mex restaurants under the name “Chimichanga”, presumably including the two in East London – one in Woodford and one in Hornchurch. There has been no announcement on how many jobs are likely to go.

Although Prezzo sounds like it might be a small, friendly, family business, it is owned by TPG Capital, a private equity firm. These firms are very much interested in making money from their businesses, and TPG will probably be hoping that the branch closures can allow Prezzo to return to profitable trading quickly. This may be difficult in the face of stiff competition from a wide range of other Italian food outlets and pizza specialists.

Prezzo follows hard on the heels of Jamie’s Italian restaurants, which admitted they were in trouble in the New Year. The company fended off creditors by restructuring, closing some outlets and renegotiating rent levels with landlords. Barbecoa, a small chain of barbecue restaurants in the Oliver group, went into administration.

Italian chain Strada also announced at the start of the year that it was closing a third of its outlets in the hope of staying afloat. Just to show the problem is not confined to Italian eateries, burger chain Byron has also had to restructure.

It’s not jut the restaurant sector that is struggling. After weeks of teetering on the brink, Toys R Us UK fell into administration at the end of February. Stores are staying open to sell remaining stock – but when that is done, 3,000 jobs are set to go.

The electronics specialist Maplin has also collapsed into administration. The company has 2,300 staff working across over 200 stores. The administrator is PwC, which is still looking at whether some of the stores can be saved.

These failed companies have all faced rising costs. The national living wage has increased, and many stores will see business rates soar from April. But they have also had to deal with reduced demand. Wages have been cut in real terms, so consumers have less money to spend eating out. Parents cannot splash out on toys as they used to, and householders will now shop around – often finding the cheapest deals online – for toys and electronic goods.

Workers who lose their jobs in this round of closures will, in turn, have reduced spending power – threatening the viability of other businesses. The UK economy is far from recovering from the 2008 crash.

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