Calling Time on Carluccio’s: Restaurant chain faces imminent financial collapse

May 4, 2020

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2 min read

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What's going on here?

The Italian restaurant chain Carluccio’s is facing imminent financial collapse, given the impact of the COVID-19 pandemic on the “casual dining” industry.

What does this mean?

The BBC has suggested that Carluccio’s closure will mean the loss of 2000 jobs. There have already been reports of Carluccio’s staff being paid only 50% of their monthly salary. With the restaurant chain already struggling prior to COVID-19, because of a squeeze in the “casual dining” industry, COVID-19 could end up being the straw that breaks the camel’s back. With Europe becoming the epicentre of the COVID-19 epidemic recently, many European cities have entered lockdown, meaning that citizens are only allowed to leave their homes for essential activities, such as purchasing food. Specifically, the UK has mandated all restaurants and pubs to close during this restrictive period.

Carluccio’s hired administrators to look at its long term prospects. A company that enters administration allows administrators to take over the running of the company, in exchange for the company obtaining protection from creditor debt. However, it remains to be seen if the administrators would be able to turn things around, given the likely long-term impact of COVID-19 on the dining industry and on general income levels.

What's the big picture effect?

What happens to Carluccio’s depends on whether the company can be streamlined during administration. If the company is deemed to have no future, then the company can either be sold or liquidated. Under the liquidation process, the company’s assets would be sold to creditors to repay some of the debt. Lawyers would be required to handle the entire restructuring and insolvency process, including advising the distressed company’s representatives on their duties to the creditors and handling any insolvency litigation proceedings. In terms of pending litigation, Carluccio’s might face legal action from labour unions for paying its staff 50% of what they are due, especially if the wage deductions drive the wages below the legal minimum wage. 

From an industry perspective, Carluccio’s financial troubles are representative of the entire “casual dining” industry. With the National Living Wage, lower consumer spending, and now the COVID-19 epidemic, Byron and Strada are some additional chains which are staring at collapse. As it is extremely unlikely for banks to provide financing during this period, restaurant chains around the world would have to grapple with cashflow issues while suffering an almost complete wipeout of customers.

Report written by Henry Tan

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