Pizza Hut hires Alvarez & Marsal for guidance on company voluntary arrangement: Possible restructuring on cards

It is likely that the Pizza Hut restaurant chain will opt for financial restructuring due to the impacts brought in to the business by the coronavirus-led pandemic. It is in touch with Alvarez & Marsal, a turnaround and performance improvement professional services firm and sought help on the benefits of a company voluntary arrangement (CVA). Under the provisions of CVA, a company can settle its debts by paying only a proportion of the amount that it owes to its creditors. In an insolvency agreement, the restaurant chain that has thousands of people on its payroll, has indicated on plans of restructuring its debts that could lead to loss of jobs for the its employees. Pizza Hut is yet to reveal its final decision, CVA remains on the cards as a distinct likelihood.

Before the outbreak of the coronavirus pandemic, Pizza Hit operated out of 244 outlets in the UK and opened majority of these since the government lifted the lockdown restrictions. As of now, the company has not indicated the number of outlets or jobs that could suffer due to the restructuring plans. On 29 July 2020, the company had informed that it plans to open 213 restaurants in the country by 10 August 2020, while the remaining would get operational as soon as possible.

Pizza Hut highlighted that the entire restaurant sector has seen a sizeable impact due to the cost of lockdown and reduction in business despite a noticeable support by the government. It added that Pizza Hut had entered into a three-month lockdown phase in March 2020 with considerable strength but similar to other businesses, the company is looking at coming out of the crisis, reduce financial impact, and continue to do business as usual.

Competitor scenario in the industry

PizzaExpress, considered to be one among the many competitors in Britain, has plans to close approximately 75 outlets. PizzaExpress has also proposed CVA that is likely to be announced in coming days. A common reason seen behind several casual dining chains opting for insolvency means is negotiating cheaper rent deals with the landlords. It is to be noted that in order to help the tenants survive the crisis situation, owner of commercial properties have been urged to be open to negotiations on rent agreements or deals. The Casual Dining Group that owns Café Rouge, Azzurri Group, parent company of Bella Italia, and Carluccio's have also fallen into administration since the time pandemic began. In addition, Byron, Prezzo, Itsu, and Wahaca are the ones who have initiated inspecting their financial positions and consulting their advisors.

In the UK, there are around 5,700 people who work for Pizza Hut Restaurants in addition to the company’s UK delivery arm that trades from a further 380 outlets. The restructuring will most probably not include this entity of the company as it is yet to take a final call on the way ahead. Pizza Hut is reported to have considerably strong prospects before the pandemic began as the restaurant chain was successful in reviving its finances after a long period of losses. It operates in the UK under franchise arrangements from Yum, its US-based owner.

Impact of the coronavirus pandemic on the UK’s restaurant industry

The lockdown imposed in March 2020 to control the spread of the coronavirus brought huge losses and job cuts in the country’s restaurants businesses. In June 2020, the Restaurant Group plc announced to cut 3000 jobs in its chains that include Frankie & Benny’s and Garfunkel’s, while planning to close up to 120 outlets. Earlier in July 2020, Burger King said that the losses due to the outbreak of the coronavirus could force the company to put permanent shutters on 10 per cent of its restaurants leading to 1,600 job losses. Additionally, the owner of Bella Italia has announced loss of 1,900 jobs.

The fear of getting infected was such that people started avoiding restaurants and pubs, where maintaining social distancing was considered to be difficult, even before lockdown was formally enforced on 23 March 2020. According to data from Statista, a German online portal for statistics, the year-over-year fall of seated diners in UK restaurants was recorded as 52 per cent on 16 March 2020, the day when the UK’s prime minister just advised people to avoid venues like restaurants and bars, among other crowded places. The decline further increased to 82 per cent the next day and the restaurants were finally asked to close few days later.

Measures by the government to support the restaurants

Among its key measures to support the restaurant chains to overcome the Covid-19 led financial crisis, the UK government has announced the ‘Eat out to help out’ scheme. Announced on 8 July 2020, this scheme says that restaurants and eating joints that sign up to this will offer 50 per cent meal discounts on off days including Mondays, Tuesdays and Wednesdays to be reimbursed by the UK Treasury. Among other steps to revive the economy, this initiative aims to encourage people to return to high streets and will continue for the entire month of August 2020.

To help revive the economy and save restaurant businesses and its jobs from the crisis of lockdown and continued fight against the disease, the government in June end 2020 allowed pubs, restaurants and cafes to start operations. Given the social distancing advisory and increased need for sanitisation to curb the spread of Covid-19 infections, the government emphasised on outdoor dining arrangements. The license process for outdoor dining would be simplified and involve lesser costs, so that more and more people safely eat and drink.

Conclusion

Having seen doors locked for nearly a period of three months of lockdown both for staff and visitors, restaurants and eating joints in the UK were allowed to re-open on 4 July 2020 with strict hygiene conditions in place and social distancing guidelines to prevent any further infections. Amid fears of rise in infections and social distancing norms, the number of seated diners to come to the restaurants has seen slow but gradual increase since then. This adds to the already serious distress regarding the prospects of business growth for restaurant chains in times to come, at least till a successful vaccine against the Covid-19 hits the market.

Though the industry at large has welcomed the ‘Eat out to help out’ scheme, to be launched from 1 August 2020 for one month, it remains to be seen if that adds to the business sentiments and helps them in their efforts to sail through the crisis.