What restaurants and pubs need to know
Over the past two years, a lot of sectors have come under pressure because of Covid-19 and subsequent lockdowns.
But it’s possible to argue that hospitality has suffered the most in these exacting circumstances.
First to close, last to open was a common scenario whenever a lockdown arrived, making those in the hospitality sector more vulnerable to shifts in customer confidence than any other too.
New research for the industry has shown that during the 12 months to May 2022 some 1,406 restaurants closed their doors in the UK, up 64% on the previous year. This is an even larger increase in closures in comparison to the wider hospitality industry, which saw a 56% rise in insolvencies over the same period.
So what is affecting the restaurant industry more than other sectors right now?
In June, inflation hit a 40 year high of 9.4% and is showing little prospect of reducing in the near future as analysts warn that inflation could rise as high as 12% by October.
This new and unsettling trend has eaten into household income at a rate not seen in nearly 20 years and because of this, businesses across the UK have been dealing with a slowdown in consumer spending as people are cutting out non essential items to cope with the cost of living spike.
An average restaurant could see the number of diners visiting down by as much as 40%, while the cost of some ingredients have gone up by 40% or more.
Figures show food costs from wholesalers have risen by 8-12% as well as the VAT rate for the sector moving from the temporary 12.5% figure back to 20%.
On top of the rise in price for ingredients, a whopping 93% of hospitality operators report higher energy costs at the same time that rents are also beginning to rise. There is a further predicted increase in annual energy prices in October which are uncapped for businesses and could see them rise annually by thousands more pounds.
Another issue looming over the hospitality industry is the number of roles that remain vacant, with one in seven hospitality jobs currently unfilled.
In order to combat this, 77% of operators have increased pay to retain and attract staff which has resulted in an 11% increase in average pay levels for hospitality staff over the last year.
However despite this effort nearly half (45%) of businesses have had to reduce their trading hours and a third have had to close for at least a day to manage with the lack of availability.
Hospitality businesses from across the country are finding it difficult to balance absorbing the costs and passing on the pain to customers who are also struggling to cope with rocketing prices; data shows the average dining out spend has declined by 9% per visit already according to Lumina Intelligence Eating & Drinking out Panel.
Customers are already sure that they will try to save money on their total bill by reducing the number of courses ordered. Around 40% of those who typically order 2 courses indicated a likelihood to downgrade to just a main course. 60% of those ordering 3 courses would downgrade to fewer courses too.
Business rates
The Government has recently launched a consultation on the transition for the next business rates revaluation and UKHospitality, the leading industry body for the hospitality sector, is using it to highlight the impact of the pandemic on property value and the financial fragility of the hospitality industry and emphasise the need to ensure that any reduction in business rates is reflected in the bills as rapidly as possible.
In a full response, UKHospitality has called for the continuation of business rate relief for restaurants and bars hit the hardest during the pandemic, an assurance that the scheme will allow for all businesses to reach their true reduced value form April 2023, a cap on how much bills can rise and no RPI inflation increase to the total sum of business rates.
UKHospitality CEO, Kate Nicholls, said: “The priority must be enabling reductions in bills to be felt immediately and the Government needs to ensure that the cost is reduced for those sectors hit hardest by the pandemic and in most need of support.
“We strongly believe that the Government needs to reflect the unprecedented impact of the pandemic, compounded by the impact of an economic downturn and high levels of inflation, in the new rates scheme. If this is taken into account, the hospitality sector can play its full part in the wider UK economic recovery, creating jobs and delivering skills and boosting our high streets and communities.”
With customer confidence falling, dining out and takeaways are among the top five areas where customers are figuratively and literally tightening their belts instead of loosening them.
This combined with the inflation and energy prices showing no signs of improvement, hospitality businesses are in for a difficult few months ahead.
If you are struggling, or worried about what’s round the corner, take advantage of some free advice, we can let you know what options are available to you, so that no matter how Autumn unfolds you can still have your menu set accordingly.
We offer a free initial consultation to help anybody who wants to strengthen their business before tough times come along – or if they’re in immediate danger of succumbing to debts.
Even if your business is not in hospitality, it’s important to consider that if the cost of living can impact something as universal and loved as the fish and chip industry, then it could happen to your business too.