A Smaller Sized Gourmet Burger: Restaurant chain to close 26 restaurants

November 22, 2020


3 min read

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What's going on here?

Gourmet Burger Kitchen (GBK) is closing 26 of its restaurants and cutting 362 jobs in a pre-pack administration deal.

What does this mean?

Following a company voluntary agreement (CVA) in November 2018, a range of restructuring measures put GBK on stable financial footing until February 2020. A CVA is an insolvency procedure that allows a company to renegotiate its obligations to its creditors. However, the impact of COVID-19 and associated lockdown restrictions has hurt the restaurant chain’s liquidity. With little cash coming in, GBK has once again struggled to pay its creditors – leading to defaults on its loans and rent. This desperate situation drove GBK’s need to find a funding or sale solution. 

Step forward pre-pack administration! A pre-pack administration is where a company’s sale is finalised before the appointment of administrators. Boparan Restaurant Group – which rescued Carluccio’s earlier this year (see our article on that here) – has come to GBK’s aid. Boparan will add the burger specialists to its roster of brands, which include the Giraffe, Ed’s Easy Diner, Fishworks and 2 Sisters Food Group.  The sale has saved a portfolio of 35 GBK locations and 669 jobs.

What's the big picture effect?

The damage done by the pandemic extends to the entire hospitality sector. The broader challenges facing brick and mortar businesses (see our article on that here), coupled with the lack of demand during the lockdown, has left many firms cash-strapped. And there still isn’t any light at the end of the tunnel. The introduction of a second national lockdown has once again forced site closures and triggered hundreds of thousands of job losses across the industry. 

What are GBK’s odds? Food industry tycoon Ranjit Singh Boparan is the man behind Boparan Restaurant Group. The infamous “chicken king” has taken advantage of the pandemic to grow his restaurant empire. While it is an extremely challenging time for the sector, Boparan’s strategy is that quality hospitality businesses will recover in the long term as people return to eating out. With an extensive cash pile from his other subsidiaries (2 Sisters Food Group supplies a third of the chicken in UK supermarkets), GBK’s odds of survival are good. The burger kitchen is one of the lucky ones.

As more businesses enter into administration, law firms will play a key role. Restructuring & Insolvency teams will help renegotiate obligations with creditors. They will also play a key role in structuring any sales that occur during the administration process. Employment lawyers will advise on the furlough scheme, restructuring of employees between sites and ensuring that consultation processes are followed in the event of redundancies. Real Estate teams will renegotiate leases and the sale of sites that are no longer needed. 

The GBK deal is merely the latest in a wave of transactions that have reshaped the UK’s casual dining industry since the start of the pandemic. Burger King, Wagamama and Prezzo to name a few, have all resorted to insolvency processes, auctions or emergency funding. The industry barely survived the first lockdown thanks in large part to the Eat Out to Help Out scheme. But with lockdown 2.0 firmly upon us, it remains to be seen whether the industry can pull off another miracle.

Report written by Deniyi Coker

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