Mergers and acquisitions could save SMEs

According to the corporate finance advisory service company, the industry is concentrated, with just 7% of firms accounting for 76% of turnover.

The data, based on some 200 bars and restaurants with earnings more than £1m, also revealed the sector’s turnover amounted to about £60bn in the 12 months to Thursday 30 June 2022, a decline on the previous year.

Furthermore, the report stated bars and restaurants had an average gross profit margin and earnings before interest, taxes, depreciation, and amortisation (EBITDA) of 49% and 15% respectively.

Aggressive pricing 

Shaw & Co head of debt advisory and report editor Alexei Garan said: “We are delighted to have launched our second annual, in-depth Food & Drink sector report​.

“We hope it will help SME business owners benchmark their own and their peers’ performance in the sector and aid their decision-making processes.”

With larger firms’ sales declining, the data showed how effective smaller businesses had been at competing with the giants, with many seeing sales rise.

This showed gross margin level and bottom -line profitability being largely comparable between firms with EBITDA of £3m and those with up to £30m, also implying whatever scale advantages larger players generate, are passed on to consumers in more aggressive pricing.

While the sector recovered well from the pandemic, it has continued to face supply chain interruption and food and energy inflation, which were not reflected in the reported performance numbers.

Valuable insight 

However, the industry is well positioned to outgrow inflation through organic expansion or by acquisition, if entrepreneurs can recognise opportunities in the midst of uncertainty, according to Shaw & Co.

The report suggested smaller businesses with good performance could consider an acquisition strategy to take advantage of economies of scale for this industry, or an acquisition target for one of the larger industry players, with 91 mergers and acquisitions having taken place in the past 12 months, to aid further recovery.

Garan added: “Our aim is to provide small business leaders with free access to the same market intelligence as larger blue-chip corporates, who benefit from investment banking advisors.

“The report will also provide SMEs with valuable insight in terms of their relative creditworthiness and attractiveness from a merger and acquisition point of view.”