Recent polls from the pub and hospitality industries in the UK have revealed the dire position hospitality firms face throughout the country as they battle inflation, rising energy costs, and staffing, which might force them to operate at a loss or perhaps go out of business by 2023.
Every sector of the hospitality industry, from bars and pubs to restaurants and hotels, faces unique challenges to avoid bankruptcy and thrive for the foreseeable future. Therefore, compiling the findings of these various surveys into one post would be good.
UK Restaurants are failing at an alarming rate.
According to a recent survey conducted by the UK Hospitality and the British Beer and Pub Association (BBPA), more than a third of the UK's pubs, restaurants, and hotels expect to be operating at a loss or go out of business by 2023 as a result of rising energy and food costs and falling bookings and have been forced to prop up their businesses using their savings to survive.
By the end of the year, 35% of respondents expected to be operating at a loss or be unviable, with 96% predicting greater energy prices and 93% expecting food price increases.
In addition, 60% of the hospitality sector is facing bankruptcy, has become insolvent, or has closed its doors for good.
In a joint statement by UKHospitality, BBPA, the British Institute of Innkeeping (BII), and Hospitality Ulster:
“If the Government wants to be turbo-charging sectors of the economy, our dynamic hospitality industry is prime to grow. But it needs to survive this generational crisis first.
“Further business rates relief is critical to avoid businesses facing a cliff edge in April next year, and, in the long-term, a move to cut VAT for hospitality would do wonders in giving consumers the confidence they need to support their local hospitality businesses, which are so crucial to our local communities and the economy.
“We would all encourage the Prime Minister, Rishi Sunak, to work with the sector on these suggested measures and what further action can be taken to ensure hospitality continues to thrive well into the future.”
Restaurant owners ploughing their own money into their enterprises
According to audit, tax, and advice company Mazars, the amount that restaurant owners have ploughed into their own companies has jumped 12% in the last year, from £377 million in 2020/21 to over £424 million in 2021/22,
Rising food and labour expenses and spiralling energy prices have financially strained many companies. The popularity of online ordering has made it more difficult for restaurants to turn a profit forcing many restaurant owners to pour additional funds into their business operations to survive. In a desperate attempt to generate capital to lend to their businesses, several restaurant owners are re-mortgaging their homes or cashing in their investments to keep their enterprises running.
Despite plummeting sales, several restaurant owners have been forced to increase employee wages to attract new staff to fill vacancies created by the post-Brexit shortage of workers.
Due to challenges in obtaining capital elsewhere, struggling restaurant owners have been forced to lend their own money to their enterprises. Because of the restaurant industry's obstacles, high street lenders are hesitant to boost their lending to smaller restaurant operations. High interest rates have made loans unaffordable for many business owners.
In December 2022, Insolvency Service reported 435 restaurant insolvencies in the last quarter, a 15% increase from 395 in the previous three months.
Before the energy crisis, the hospitality sector returned strongly from the pandemic. It showed real signs of growth, but restaurant owners should pause momentarily before pumping more of their life savings into their businesses, however desperate the situation is.
CoCredo Credit Report Agency can help
The main takeaway for the hospitality industry is to be proactive at the first signs of financial difficulty. Please tackle the issue to avoid further stress and economic problems impacting your customers, workers, and shareholders.
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