Soaring inflation ‘as bad as Covid’ for hospitality sector

Soaring inflation ‘as bad as Covid’ for hospitality sector

20 Jan    Finance News, News

The casualty rate for pubs and restaurants in the pandemic is being matched by hospitality sector failures because of inflation, research suggests.

Inflation in energy bills, wages and other costs caused a net decline of 4,809 licensed premises last year, a higher tally than 2021.

The Hospitality Market Monitor published today by AlixPartners and CGA by NielsenIQ, shows the sector has 13,037 venues fewer than in March 2020 when Covid restrictions curtailed trading, a decline of 10 per cent in less than three years.

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The closure rate, which is net of openings, is equal to 13 sites being lost every day since March 2020, although in the final quarter of 2022 the net decline accelerated to 1,611, or 18 a day, as energy, food and other costs rose.

This time last year many operators were confident that the Covid-19 crisis was a once-in-a-generation phenomenon, but the data from the hospitality monitor suggests that the number of casualties from inflation may not have peaked.

Energy and food inflation in particular have hit profit margins and fragile consumer confidence, rail strikes and labour shortages are all adding to the headwinds facing hospitality operators in the coming year.

Kate Nicholls, the chief executive of UKHospitality, the trade body, said: “This level of venue closures is the stark reality of the rapidly rising costs businesses have experienced this year.

“Behind every one of these closures are dedicated people who have become victims of circumstances out of their control and are now being forced to exit the industry, shedding jobs in the process.

“Until business costs get under control we will continue to see this level of closures. A focus on reducing the cost of doing business needs to be a priority focus for government in order to free up much-needed cashflow for the sector.

“This will allow us to get back to creating growth, generating job opportunities and driving forward the everyday economy.”

While the Covid pandemic hit big players as well as small, notably casual dining operators such as Carluccio’s, Yo! Sushi and PizzaExpress, all of which closed sites as part of restructurings, this time the independents appear to be suffering disproportionately. Of the 1,600 casualties in the final quarter of last year, almost 90 per cent were independents, many of them small businesses that were weakened by Covid, such as the Devon gastropub the Five Bells Inn, in Cullompton.

Some casualties include Byron — which shrunk further following its third restructuring in five years — while Ping Pong and AMT Coffee went through pre-pack administrations. Fine dining has not been immune, with D&D London, the owner of Quaglino’s and Le Pont de la Tour, pulling down the shutters on Avenue and Radici in London, East 59th in Leeds and Klosterhaus in Bristol.

Even if the groups are surviving, there is evidence that they have started pulling out of some of the new sites that had come up for grabs during the pandemic, putting expansion plans on ice and conserving cash to see out the storm. This week Revolution Bars showed some of the drastic measures being adopted to keep a lid on costs, announcing plans to close some of its late-night bars on a Monday and Tuesday.

Graeme Smith, managing director of AlixPartners, said: “What is clear is that, without further government support, the energy crisis has the potential to take a bigger toll on hospitality than Covid, and if the current rate of closures continued, we would see Britain’s number of licensed premises fall below 100,000 some time this year, down from about 102,000.”

The initial Covid lockdown was largely responsible for a year-on-year drop of 4,880 sites in 2020. With government support and the roll-out of the Covid vaccine, business confidence rallied, and site losses were stemmed to 3,348 in 2021. But despite the easing of trading restrictions, the year-on-year decline rose again to 4,809 in 2022.

Karl Chessell, a CGA director, said: “While Covid took a heavy toll on hospitality, these figures suggest the energy crisis is having an even more damaging impact. Given all the pressures, a drop of more than 1,600 venues in three months is quite shocking, and every closure represents a sad loss of jobs and disappointment for communities and operators.”

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