Rising costs at centre of hospitality sector woes

Restaurant failures have surged by 35% in 2018, according to figures from the Insolvency Service, showcasing the pressure that the sector is under.

In the first nine months of the year 1,123 restaurants collapsed, a jump from 833 in the same period in 2017.

Further research from UKHospitality revealed that eight restaurants or pubs are closing every day across the UK, as they struggle to overcome mounting costs.

Numerous high‐profile chains and restaurants have faced financial issues so far in 2018, including Gourmet Burger Kitchen, Prezzo, Byron, Strada and Gaucho.

All have closed stores via CVA agreements, entered into administration or insolvency, or required a different form of restructuring.

Rising labour costs are linked to the financial issues, as businesses in the hospitality sector have struggled to raise prices in order to compensate.

According to research, of the 15 worst‐affected companies as a result of a 5% increase in wages, nine would come from the restaurant and leisure sector.

Payroll costs now account for nearly 30% of business outlay, according to UKHospitality, while controllable costs – those that companies can manage – are at their highest level for 12 years.

Just 13% of pubs and 24% of restaurants are likely to benefit from business rate reductions announced in the autumn budget too, according to real‐estate firm Altus.

The hospitality sector has also reported recruitment problems as uncertainty around Brexit clouds the potential for long term planning.

Changing consumer habits relating to eating and drinking out have placed further pressure on the industry, although those offering delivery services have experienced a degree of respite.

Businesses facing financial difficulties should seek advice at the earliest opportunity to unearth the full range of insolvency and restructuring methodology that is available.

An independent business review may also aid the development of a long‐term strategy by taking an in‐depth look at a firm’s assets, finances and forecasts.

By Phil Smith

If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

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