Hospitality sector: what’s the outlook for 2018?

9 February 2018

Just over a year ago, we commented on the restaurant sector and Brexit in 2017. We reported that, according to the management team, Brexit was already having an impact at Jamie’s Italian restaurants, with the announcement of the closure of six sites in January 2017. We suggested that something else was going on, not just the Brexit effect. When we review the situation one year on, this is now borne out by events, as a ‘perfect storm’ appears to be brewing. There are a number of pressures on the sector, placing it in a similar position to where it was prior to the start of the financial crisis in 2008.

While many new and exciting outlets are opening, the overall number of outlets is decreasing, and pubs and restaurants in particular continue to close. A combination of increasing rental costs, business rates, wage and food price inflation, softening consumer demand and staff shortages are hitting companies, with limited scope for passing on cost rises to the consumer.

The main threat with Brexit relates to workforce issues (staff shortages) and the UK having sufficient access to talent. Brexit will place a greater urgency on developing the skills of the domestic workforce, but the sector will clearly continue to rely on EU workers following the UK’s departure from the EU, although there is a lack of clarity about the precise numbers. As a result, the sector looks forward to a deal on EU workers’ rights in the UK in order to maintain its workforce during any transition period.

As well as these financial and staff pressures, there is also the issue of market saturation which we alluded to a year ago. Due to a decline in retail, landlords have looked to fill units with food and beverage (F&B) businesses, predominantly casual dining groups, many of which are venture-capital or private-equity backed. It is therefore no surprise now to see an over-supply of such outlets across the UK. Consequently, banks are now more cautious, and it is also much harder to raise debt finance and refinance under favourable terms.

Finally, there are the delivery disruptors such as Deliveroo adding more uncertainty to traditional restaurants – should they engage delivery or will it erode the brand?

For all the various challenges, good restaurant operators will still survive. However, those who don’t deliver the right concept in the right location are less likely to survive than five years ago.

Already this year, Byron Hamburgers has announced a Company Voluntary Arrangement in an attempt to secure its long term future. In addition, Jamie’s has confirmed that it is exploring plans to restructure its Italian restaurant estate in the UK, to ensure the business is in good shape for the future. At UHY, we have received six instructions from F&B outlets relating to a proposed Creditors’ Voluntary Liquidation in the last nine months.

Despite the grim picture painted above, the hospitality sector remains a huge industry in the UK – eating and drinking out is worth over £60 billion a year, equivalent to 4% of GDP. Employment in the sector is up 20% since 2010, with one in three new jobs being in hospitality. It’ll be interesting to see where we are at the beginning of 2019.

If you are a restaurant or bar operator and need advice regarding your financial affairs if your business is in difficulty, then please contact me or your local hospitality expert. Alternatively fill out our contact form here.