“The City has been through enough slumps to know what to expect next: layoffs, shrinking bonuses for those lucky enough to keep their jobs and a new frugality over expenses. This will inevitably have repercussions on housing prices, but also on other types of consumer spending that boomed along with the City. They range from fancy restaurants and overpriced cappuccino bars to pricey vacations, bespoke suits and aroma-therapy massages that the financiers and their legions of support staff could once readily afford”.

It gives us no pleasure to observe that the impact on the London restaurant scene may be dramatic. During the bull run of the last ten years we have seen a huge boom in the restaurant and luxury goods sector. We have experienced an unprecedented prosperity and spending at levels never seen before in the city of London or anywhere else. There has been an explosion of new and reinvented restaurants in the city of London and across the United Kingdom and this development has been predicated on previously unseen levels of disposable income. The property boom gave many Londoners the financial and economic confidence that was now (with the hind side of twenty-twenty vision) misplaced, Londoners have been spending (the perceived increase in their wealth based on real estate values) with profligate abandon. This spending on restaurant dinners is now with the credit crunch and the impending recession, clearly unsustainable. Many restaurants are looking at hard times ahead.

The additional impact of the crash on the city of London as a financial centre will no doubt have double effect. The days of spending in the top level restaurants are over. Similarly as discussed in another article “Bordeaux Crash” it is likely that we will see a similar reversal in the hugely inflated price of fine wine, specifi cally Bordeaux. The price of many of these wines is completely out of contact with their true value. The price of Bordeaux wines can no longer defy gravity and like other investment vehicles including real estate share equities, we will inevitably see a huge if somewhat delayed price correction. “One does not have to be an economic guru to understand that in the long term we will see the price mechanism and price determinacy of demand and supply re-establish more realistic price levels”. Whilst this has occurred in the real estate sector and other sectors, previous history shows that there could be delay in price corrections affecting the luxury markets of art and wine.

“The coming downturn is already shaping up as different – and tougher – than some previous ones. That’s because the financial crisis is taking place at the same time as a real estate downturn, a conjunction that is unusual”. And the problems are being exacerbated by an explosion of household debt in Britain over the past decade, which now leaves people especially vulnerable. “It’s obvious that with a crippled financial sector the consequences won’t be too good,” says Vincent Tchenguiz, one of the biggest property moguls in the UK. “London was helped by strong international markets, but as they’re now gone, we’ll see some stress.”

Unfortunately the impact on the restaurant sector will be even more severe than in the early 90s whilst dining and the enjoyment of gastronomic delights and wine have become a national obsession (witness the myriad of gastronomic and cooking programs on TV) current economic circumstances and loss of disposable income by many people will see the introduction of tough times in the UK restaurant sector. How will this impact on the marketplace? We will inevitably see retrenchment and the shedding of labour in a desperate attempt by restaurant owners to reduce their financial overheads. The current trend for diners to reduce their spending in restaurants by such means as economising on wine, i.e. drinking cheaper wine, skipping desserts, eating two entrees instead of a more expensive main course or insisting on tap water instead of more expensive mineral water – all these actions will have a serious impact on the gross profi t of the restaurateur. In addition diners will be more frugal with the tips to waiting staff. Not to mention the fact that people are staying home to prepare dinner. Various press reports have emanated, including from a spokesperson at Selfridges, who has confirmed the consumer trend to purchase better cuts of meat e.g. rack of lamb with a view to preparing restaurant style dishes at home.

Some of the upmarket places have already been feeling the pain. Many restaurateurs remain upbeat about the future, but some it is conceded “do feel a slight wave of fear.”

Move away from London, however, and you get a rather different perspective. Across the English Channel, Thierry Jacquillat, chairman of the Greater Paris Investment Agency, looks at what’s happening in world financial market and says: “The economy of Paris will resist “the crash” better than London. We’re more diversified.” “There was some idea that the financial sector was immune.” He says. “It’s like pinning your hopes on anything, whether it’s textile in the north of England or the car industry around Birmingham. It expands for a while and then it takes a nasty knock.”

“Boris Johnson, London’s charismatic, mop-haired Mayor, takes issue with the notion of overdependence, saying that the city’s economy has “a very, very wide base.” But he is quoted saying: “The strength of the financial sector is obviously pretty important in acting as a flywheel to spin those other wheels. And I’m going to be fighting very hard to make sure that we don’t in any way gum up that machine.”