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Restaurant discounts are "unsustainable", says report

Published:  13 July, 2010

Top-end restaurants are discounting at "unsustainable" levels as they try to woo customers, according to PricewaterhouseCoopers.

Partner David Chubb said: "While the propensity to dine out is still very much a part of UK culture, the pursuit of value for money by the consumer has led to even high-end restaurants in London laying on fixed menus and other offers usually seen in casual dining.

"Restaurants must use their customer data to analyse whether such offers are bringing new customers through the door or whether their regulars, who would dine regardless, are just doing so and paying less."

PWC said such discounting was not a long-term option and was a factor in restaurant failure rates that are 30% higher than they were two years ago.

It calculates that restaurant company insolvency levels in the second quarter of 2010 are up 5% on the first three months of the year, but down 30% from their peak of 183 in the first quarter of 2009.

Chubb warned: "While restaurant closures have slowed, both regional and London eateries are still very reliant on promotions and as a result profit margins remain under pressure. Consumers are likely to demand even greater value for money in the coming months as the impact of higher taxes and interest rates take hold."

Pub company insolvencies are down a third from the peak of the recession, according to PWC, but fears of further Government spending cuts, potential interest rate rises, and a reduction in discretionary spend could slow recovery - causing a further wave of restructuring and insolvency.

The failure rate in the pubs and bars sector peaked in the last quarter of 2009. Insolvencies fell by almost a third in the second quarter of 2010 but Chubb said the failure rate was still comparatively high, trading conditions remained difficult.

"Even without entering insolvency, creditors may still experience pain," said Chubb.