What do restaurants, pubs and bars need to understand?
As mentioned above, this article will detail the statistics for the industry, as well as the future consequences to be taken into consideration.
Insolvency statistics for 2018
The UK insolvency statistics – released each quarter – provide us with insights that are useful for thinking about the issues facing different sectors, and what can be done to combat the number of limited company insolvency procedures.
According to the 2017 report, the underlying number of businesses becoming insolvent increased, driven by a large number of creditor voluntary liquidations. While the largest number can be attributed to the administration industry, the accommodation and food service sector accounted for the fourth highest number of liquidations. The other industries accounting for the ‘top 5’ (as it were), most at risk are:
- Administrative and support service
- Wholesale & retail trade, repair of vehicles
- Accommodation and food service
The 2018 insolvency statistics for the first quarter tell a similar tale for insolvency procedures as a whole. The number of insolvencies increased in Q1 to the highest level since Q1 in 2014, with the statistics affected by bulk insolvencies.
In total, 4,462 companies entered into insolvency, with 72% due to creditors voluntary liquidations. While the number has increased, the accommodation and food service sector has experienced brief relief, dropping in the list of industries affected by insolvency.
However, with for example the recent news of Carluccio’s entering a CVA, feedback would suggest there are still many issues to combat.
Issues facing the hospitality industry
The hospitality industry has experienced considerable changes throughout the years. For instance, the number of UK pubs in operation has continued to fall since 2010, with 985 closing their doors in 2017 alone (according to CAMRA). Over the years, the industry has faced issues with the likes of:
- Inflexible tenancy agreements and higher rents. Often, many hospitality leases are characterised by a lack of flexibility and restrictions on stock etc.
- The smoking ban has been diagnosed as a key factor in many pub and bar closures, with almost 7,000 pubs closing between 2007 and 2015 in the UK alone.
- Increases in the duty of alcohol.
- More competition.
- Change in drinking trends, with more choosing to stay at home.
- Lower disposable incomes.
However, the industry did experience light relief with the freeze on most alcohol duty, outlined in the Autumn budget in 2017.
Notable examples of insolvency
Carluccio’s, a famous restaurant chain with over 3,200 employees, has recently revealed plans to save the business. The eatery proposed a company voluntary arrangement to rescue the business.
In May 2018, over 91% of their creditors voted in favour of the CVA – a recent procedure being used by many to shed sites that are, currently, making a loss. With these plans, there is talk that Carluccio’s is looking to close more than 30 of its UK restaurants.
A group of 34 restaurants are said to be affected by the CVA, with landlords agreeing to cut their rent bills by a third for six months. After the six months, they will close if a reduced rent deal cannot be agreed.
What can you do?
There are many options regarding insolvency advice should you feel your bar or restaurant may be facing cash flow issues. For instance, you could seek an injection of additional finance from alternative lenders. However, if you are struggling with paying your HMRC taxes, a HMRC time to pay arrangement (TTP) may be a suitable option.
The TTP arrangement provides an extended time period to pay your tax arrears, and can last anywhere between three to 12 months. More information can be found here.
Alternatively, negotiating a CVA – similar to that of Carluccio’s – can provide your company with time to make single, monthly and affordable repayments to creditors.
However, before doing so, you must seek urgent business insolvency advice as a CVA requires the services of an insolvency practitioner (IP). The IP will oversee the CVA, which does allow your limited company to continue trading.
Essentially, a CVA does help your business return to profitability, but you must speak to an expert and discuss all insolvency advice options before speaking to your creditors.
The future of the industry
The landscape for the hospitality industry has changed dramatically over the years. Similar to the effects of the retail industry, the ability to purchase online has affected the food and beverage sector.
For instance, consumers can buy cheaper drinks and actively stay at home. However, the younger generations may be the way forward for those struggling to make the change. For example, 18-24 year olds have listed one of their most popular activities as social media.
Therefore, online advertising and a long-term social media strategy may help appeal to more customers. Similarly, friendliness, music and WiFi also play a part in their choice of bar.
If you have noticed any changes in your company and have noticed any of the early signs of insolvency, you can speak to our BusinessRescueExperts regarding confidential business insolvency advice.