UK hospitality warns of ‘tidal wave’ of closures as crises loom

UK hospitality warns of ‘tidal wave’ of closures as crises loom

25 Oct    Finance News

Britain’s hotels, restaurants and bars had high hopes that Liz Truss might act as prime minister to address crushing cost rises as they emerged from the Covid pandemic.

Her business energy support package offered some respite, but the economic chaos and mortgage payment rises triggered by the shortest premiership in British history have further hit customer spending power.

Business owners now say a lifeline for the sector must be first on the list for Truss’s successor, Rishi Sunak.

The industry, which creates £130bn in economic activity according to the industry body UKHospitality, has already been hammered by a number of factors, including the financial pain of successive Covid lockdowns, supply issues, labour shortages, wage inflation, and fragile consumer confidence.

Now, it faces a deadly combination of rising prices, rocketing food and energy costs and the prospect of recession, as the vital Christmas trading period looms.

Kate Nicholls, the chief executive of industry body UKHospitality, said: “The hospitality sector continues to battle soaring energy costs, worker shortages and a cost-of-living crisis dampening consumer confidence, which is threatening the future of thousands of businesses.

“Hospitality businesses add huge value to the cultural and social fabric of local communities and we must avoid a situation where we lose a critical mass of our industry. Once these businesses are gone, they are gone for good.”

Insolvencies have hit their highest level since the depths of the global downturn in 2009, according to the ONS. More than a quarter of businesses reported their turnover was lower in September this year compared with August, with the largest drop-off (52%) for accommodation and food service firms.

In the third week of October, when many shops were preparing for half-term holidays, footfall declined by 2.3% in retail destinations, including retail parks and shopping centres, with high streets worst affected, according to Springboard data released on Monday.

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Matt Snell, the chief executive of Gusto Italian, warned that hospitality businesses had a “very, very hard winter” and had faced “unbelievable pressures” in the last 12 months.

“A big problem has been the 15% increase in food inflation this year, it has been unbelievable, just so high. But what has also really come home is wage cost inflation. Since 2019 prior to the pandemic we have seen a 16% increase, it’s been a mad scramble for staff.

“In particular, we have found a lack of availability of chefs, partly due to Brexit, but we also lost staff to firms such as Amazon and the supermarkets during the Covid furlough and they haven’t returned.”

Gusto Italian has lost “hundreds of thousands of pounds” overall by not operating restaurants at full capacity, says Snell. The business – which operates 13 restaurants and is soon to open a 14th in Oxford – has faced a hefty increase in its energy bills from £800,000 a year to £1.5m, despite the government’s energy cap.

One in five hospitality business owners said they would not make it through the current economic crisis, according to a recent survey of UKHospitality members.

A further three in five operators said they were no longer profitable and more than three-quarters were being forced to hike prices due to steep cost rises. UKHospitality estimates this will lead to a £25bn loss in trade and a potential loss of 383,000 jobs across the UK.

Jamie Langrish, 45, who owns three pubs in the Stockport area, has urged the government to offer further support. “The really pressing situation was the energy bills and fortunately the government has introduced a cap. But it’s still a significant problem.

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“At one of my pubs, the Bakers Vaults, our energy bill used to be £12,000 a year and we were then quoted £68,000. With the cap it’s now £38,000 which is still a huge sum for our business.”

Truss’s support package covered businesses for only six months, and there is nervousness in the sector about whether the new administration will extend help beyond April 2023.

“The problem with the energy situation is the uncertainty going forward,” Langrish said. “We cannot plan ahead because the energy cap is only for six months rather than two years. Will be get help after that? We don’t know.”

The 45-year-old said there has been significant food inflation, such as the doubling in price of cooking oil and escalating costs of meat and fish. Rising costs have forced the publican to delay opening a new kitchen at another of his pubs, The Crown in Heaton Mersey, over the busy festive period.

Langrish said the industry managed to get through Covid only to find another set of issues he described as a “car crash” this year. “As an industry we have been warning the government about these issues such as rising energy bills, rates, inflation – the sector is struggling and we need help now.”

Figures on critical corporate financial distress levels from management consultants Begbies Traynor reflect the urgency of the pressures the hospitality industry faces as it enters winter. Its latest statistics show a 25% jump in financial distress, with the main drivers of that increase coming from bars, restaurants and the retail sector.

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The squeeze on finances it set to deepen as the 50% business rates relief that many hospitality firms are receiving ends next year. Firms could also have to pay an extra £2.7bn in tax on company properties, which is due to rise in line with inflation, now at 10.1%.

Anthony Penden, 40, owner of London’s Somers Town Coffee House in Euston and The Victoria in Mile End, warned that the industry was “suffering” and that without intervention there could be a “tidal wave” of closures in January. The publican urged the government to cut VAT from its current rate of 20% down to 15%.

James Allcock, who owns neighbourhood bistro The Pig & Whistle, in Beverley, east Yorkshire, has also called for a reduction on the goods and services tax. “I cannot see how the current high level of VAT is sustainable for the industry. This is a long-term problem that existed before the pandemic and has created a disproportionate trading environment that does not exist in the US or wider Europe.”

Allcock, who has owned the restaurant for five years, said difficulties recruiting staff meant he’s had to turn away £35,000 in business.

Nicholls said that prior to the pandemic, hospitality was one of the only sectors expected to grow.

“Before the energy crisis hit it was forecast to grow 3%.”

She has called for urgent help from the new prime minister, including business rates relief and a lower rate of VAT. “It’s clear the economy needs hospitality to be firing on all cylinders and, while the government’s energy support package was very welcome, there now needs to be considered and urgent action to ensure businesses can survive.”

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