Phil Reynolds, one of the administrators and a partner at advisory firm FRP, said that potential buyers wrestled with cost estimates for social distancing measures as well as the future of consumer behavior.

“This uncertainty had an impact on the price that parties were willing to pay,” he said.

Covid-19 has hit the hospitality industry hard all over the world. In the U.K., the pandemic piled more trouble onto a mid-market restaurant sector that’s already suffered years of collateral damage from a declining retail industry and associated hollowing out of British town centers.

A sector that until recently was a common target for profit-hungry private equity buyers is now characterized by cost-cutting drives and humbling negotiations with creditors to soften terms attached to debts that they’re struggling to meet.

Staying Afloat

State-led programs to keep businesses afloat during the lockdown have offered respite to some, but not all, according to Kon Asimacopoulos, partner in the European restructuring group at law firm Kirkland & Ellis.

“While some restaurants have been able to access government liquidity schemes, many have been unable to do so given strict eligibility criteria,” he said.

The nationwide lockdown in late March as the pandemic took hold made an early casualty of Carluccio’s, whose blue-fronted outlets are familiar across British towns and cities. It was eventually sold to Boparan Restaurant Group on May 22, ensuring the brand will live on but with just 30 of its 70 sites open and only after more than a thousand job losses.

Equally ubiquitous names are also struggling. Azzurri group, owner of the Zizzi chain, and Casual Dining Group, which counts the faux French Cafe Rouge chain among its assets have also brought in advisers, buckling under debt loads as their revenues collapse.

“Sites in city centers and around tourist attractions are going to be impacted in the medium term as people continue to work more from home and tourist flows remain low,” said Sophie Aldrich, an analyst at Aberdeen Standard Investments.

A third of businesses in the eating and drinking out sectors expect to close some sites permanently, according to a survey conducted by CGA in April.

The number of petitions to wind up restaurants over unpaid bills jumped to 53 from the beginning of the year until April 20, up 165% from the same period last year. Another surge is expected to follow once lockdown measures are relaxed, according to a report by accountants UHY Hacker Young.

Crunch Points

Lenders to the chains have offered some support, for example by providing loan forbearance for a three-month period to their customers, FRP’s Reynolds said, but there may come a crunch point when this expires at the end of June.

As for rent, one of the biggest fixed costs for businesses, most landlords have supported business tenants who have defaulted as a result of Covid-19 -- so far.

“Mainly because this is the right commercial decision, but also because of a government-imposed moratorium on forfeiture action,” Glen Flannery, a restructuring lawyer at CMS, said.

The moratorium ends on June 30 but may be extended after that.

As restrictions are eased, landlord-tenant disputes are likely to increase as landlords seek to recover arrears of rent and tenants seek to rationalize their property costs, he added.

In this environment, Britons are certain to notice shifts in their options for eating out. A customer base that’s squeamish about using public transport will make it difficult to run a viable restaurant in the commercial centers of big British cities which offer few places to park and are often too far from residential suburbs to be accessible on foot.

Will Wright, head of Regional Restructuring at KPMG in the U.K., thinks that as a result, smaller towns will do better than bigger cities.

“High density corporate environments are going to suffer because more people are going to work from home,” he said. “Are people going to go to central London in the underground or bus to go to a restaurant?”