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- Losses mount even before pandemic hit accounted for
- Calls for hospitality VAT cut to be extended beyond March
These losses only run up to the start of the lockdown and therefore, are expected to worsen again in the coming months. Restaurants have been forced to repeatedly shut their doors over the past year and the impact of the three lockdowns have left many struggling to survive.
The Government has already provided assistance to the industry in the form of schemes such as last summer’s ‘Eat Out to Help Out’ and the furlough scheme which has been critical in helping restaurants keep staff employed.
UKHospitality, the trade association for the hospitality industry, has urged the Government to do more to help the sector by extending the reduced 5% rate of VAT on the sector until the end of 2021 to prevent a wave of redundancies. VAT is scheduled to revert back to 20% at the end of March.
Restaurants have become even more reliant on home delivery services like Deliveroo and Uber Eats over the past year to generate sales and stay afloat. However, this can be a double-edged sword as commissions of up to 35% plus VAT are taken from the restaurants by the platforms. Alcohol sales – traditionally a key high-margin offering for restaurants – are also sharply lower through these apps than for in restaurant meals where diners are more highly likely to buy alcohol with their meal.
A wave of restructuring is likely to continue in the restaurant sector, particularly the use of Company Voluntary Arrangements (CVAs) to keep businesses afloat. CVAs allow businesses to renegotiate their debts such as property lease payments so they can continue trading. Many UK restaurant groups have had to launch a CVA while others have been sold via administrations.
The Restaurant Group, owner of the Wagamama, Frankie & Benny’s and Chiquito chains recently announced plans to use a CVA to restructure the business including closing 125 restaurants. CVAs have also been used by Leon, Pizza Express and Yo! Sushi among numerous others since the start of the pandemic.
Peter Kubik, turnaround and recovery partner in the London office says: “These figures reveal how seriously the UK restaurant industry was already struggling pre-pandemic. The most worrying part is the restaurants will be still having to absorb the impacts of lockdowns for weeks or months to come.
The Government has stepped in to help but it’s likely that even more will need to be done – very few industries have been hit as hard as restaurants. At the very least the hospitality VAT cut will almost certainly have to be extended.
The hospitality industry is on a knife edge – it’s survival is largely dependent on people feeling safe and returning to restaurants which could be potentially months away.”
Losses recorded by the UK's Top 100 restaurant groups worsen sharply