Anyone involved in the UK’s hospitality sector knows all too well the sector is facing many significant challenges. While inflationary pressures have cooled from their 2023 highs, economic headwinds remain after the fallout of the Autumn Budget, where the government seemed to ignore all requests to support a sector that is so impacted by the increases in National Insurance contributions and the National Living Wage. The days of restaurant operators focusing on a 30% labour margin are very much in the rear-view mirror. While operators are experiencing Tightened margins, consumer discretionary spending remains subdued.

Traditional operators, particularly those with labour-intensive business models and rigid cost
structures, are the most exposed. Many have responded by pulling back activity and investment.
With a few notable exceptions, plans to sell businesses or seek investment have been shelved.

Despite this difficult environment, quick service restaurants (QSRs) and food-to-go brands, often
underpinned by lean, franchise-led models, are one of the bright spots in a currently tough sector.

The widening performance gap

A number of QSR operators are seeing significant growth. Brands specialising in fried chicken,
burgers, bakery, Asian or Mediterranean cuisine are buoyed by high visitation rates and simplified
menus offering meals at accessible price points. These brands are also able to operate with a
hybrid approach, with both dine-in and takeaway options as well as delivery – maximising reach
without compromising on cost.

These factors, amongst others, are seeing QSR and food-to-go operators outstripping their
traditional counterparts, meaning the divide between casual dining and QSR operator performance is widening. Formats that rely on full-service models and fixed indoor seating are at the mercy of mounting cost pressures and losing ground to more nimble alternatives. With QSRs now accounting for over a third of the total UK foodservice turnover, both consumers and investors are taking notice.

Consumer shift to QSR

The cost-of-living crisis has seen consumers continuing to look for more for less – and those QSR
operators that are better able to prioritise convenience and affordability are seeing the benefits. As a result, food-to-go restaurant sales have risen more than 20% year-on-year in each of the first
three months of the year.

With scaled back menus, standardised offerings and accessible pricing, QSRs are drawing footfall
and bucking much of the high street trend.

This shift is indicative of a broader reallocation of spend. In March, essential spending dropped
2.9% as households prepared for rising bills, but discretionary spend remained robust, particularly
across travel and hospitality, which saw 5% and 3% year-on-year growth in February and March
respectively. While consumers are still willing to spend, they are increasingly favouring lower-cost
options and in many cases, QSR operators are filling that desire.

A compelling investment case

In the wake of the Autumn Budget, the M&A landscape has seen subdued activity as investors
adopt a cautious approach and businesses shift their focus inwards – prioritising operational
stability, implementing cost-saving measures to prepare for when market conditions become more favourable for a transaction.

Against this backdrop, investors are actively favouring businesses with lean, scalable models,
particularly those who can scale through franchising, international expansion, or be able to operate with more simplistic business models. QSR and food-to-go brands continue to stand out for their ability to deliver volume at speed, with reduced exposure to labour cost inflation and greater resilience to shifts in consumer demand.

Deals such as True Capital’s majority acquisition of German Doner Kebab and Sixth Street’s
investment in Wingstop UK are prime examples of this trend in action. Both businesses benefit
from a strong brand identity, multi-market growth strategies and replicable formats that make them safer long-term bets in a tough market.

The outlook for the restaurant sub-sector remains subject to much conjecture and debate, and its challenges are undeniable. QSR and food-to-go operators are proving their value and growth
potential through scale, simplicity and their capacity to adapt to shifting market and consumer
sentiment. As we move through the second half of 2025, resilience to macroeconomic headwinds is more important than ever and perhaps this restaurant sub-sector can lead a recovery and stimulate M&A activity for the hospitality sector overall.

This article first appeared in the MCA.

Written by Henry Wells, Head of Consumer at Cavendish.