Jamie Oliver’s restaurant chain collapses after cash flow issues

23/05/2019

On the 21st May it was announced that Jamie Oliver’s restaurant chain had gone into administration, less than two years after Mr. Oliver injected nearly £13 million of his own cash to save it from bankruptcy.

So, what was it that caused such extreme financial struggles for the well-known chain, and how can you ensure something similar doesn’t happen to your own business? We’ve taken a look at how their financial struggles escalated and what caused the issues in the first place.

What happened to Jamie’s Italian?

Celebrity chef Jamie Oliver opened his first restaurant in 2008, and by 2016 had a total of 43 restaurants. But it didn’t take long for things to begin to go downhill.

The chain began to experience issues with cash flow and reached the point where it had racked up debts of around £71.5 million. In late 2017, Oliver was faced with a decision to save the business, and he injected £7.5 million into his restaurants. A further £5.2 million of his own money followed over the next few months.

As well as his own investment, the emergency rescue plan for the business included £37 million in loans from HSBC and subsidies from other parts of Oliver’s business. 

But the troubles were far from over.

Jamie’s Italian was rescued with a company voluntary agreement (CVA). This means that a statutory agreement was in place between the company and its creditors, which allows the insolvent company to repay a proportion of its debts over a period of 1 to 5 years.

This also allowed for the closure of 12 restaurants in order to save the rest.

As well as this, they completed a pre-pack administration on one of his City Barbecoa steakhouses, an unpopular decision that got them off the hook for some of the associated debts.

But 10 months later, Oliver admitted during an interview that he was unsure about what had caused the financial crisis. He said: “We’re still trying to work it out, but I think that the senior management we had in place were trying to manage what they would call the perfect storm.”

Oliver was also forced to defend business decisions taken by the chief executive of Jamie Oliver Group and his brother-in-law, Paul Hunt. Hunt instigated a restructuring effort but came under fire for his “bullying” style.

Since the beginning of 2019, the group was once again looking to secure additional investment, but as they were unable to attract investors it was eventually decided that the company would go into administration.

There were many factors that would have played a part in the eventual collapse of the chain, but here are some of the pitfalls that can you can learn from for your own business.

Consumer behaviour and technological advances

No matter what industry you’re in, consumer behaviour is liable to change, and technology is evolving so rapidly that it’s crucial to keep your business ahead of the curve.

For restaurants, the growth of delivery apps such as Deliveroo and UberEATS have meant that people are less willing to travel to get their food.

The businesses that do try to introduce these delivery services alongside their regular business suffer added strains on the demands on workers’ time, as well as higher stocking costs than when they were only cooking for customers on the premises.

Changes like these are common in all industries and can be detrimental to business. As well as Jamie’s Italian, many other big restaurant chains have faced problems, including Byron Burger, Gourmet Burger Kitchen, Prezzo and Café Rouge.

Monitor these micro environmental influences which may affect your business down the line and try and plan ahead. When you do notice something that starts to affect business, it’s always better to act early.

Rapid expansion

Another common problem for restaurant chains recently has been their aggressive expansion while the market was good. As the number of customers has dwindled, the chains were left with too much space in non-prime locations.

Expansion can be hard to manage, as businesses grow at different rates and what worked or didn’t work for someone else may not be the same for you.

When planning to scale-up, you can examine the data and information you have available to try and make the wisest possible choice for your business. Depending what your business does, it can also help to look at diversifying as you expand rather than just widening your existing offering.

Rising business costs

Rising business costs can also cause a big cash flow challenge for businesses when they’re not properly managed. Rising rent, an increase in minimum wage and soaring business rates may all have had an impact on Jamie’s Italian.

When it comes to managing your cash flow it’s crucial to have a full overview of all your accounts and making small changes early can have a big impact. Could an unexpected rising cost be balanced by a cut somewhere else?

Additionally, keeping a close eye on the money in and out of your business is crucial for success, as is reviewing your credit management. For more tips on managing your cash flow, you can read our articles on the 7 steps to better cash flow management and 5 signs you need to concentrate on cash flow.

Failure to secure funding

There are times when your ability to secure funding may be out of your hands, as was likely the case for Jamie’s Italian in the end.

More often than not though, a failure to secure funding can be avoided by your preparedness, research and the route you decide to take.

If you’re able to predict the likelihood that you’ll need funding in the future, it’s best to begin discussions early. You’ll be able to prepare everything you might need and take the time to explore your various options before it becomes critical.

Likewise, having adequate funding in place is likely to open up opportunities and should be explored before any growth or expansion is considered.

It’s always best to get a specialist input at some point on your funding journey, as even if you’ve successfully secured funding before, changes in the marketplace, your business and new alternatives will have an impact on which options are best for you.

If you are currently looking to secure funding or think you may need to sometime in the near future, our funding consultants can help you make the best decision. Get in touch now and take the first step to securing the funding you need!