26/11/22: Blink and another restaurant is gone

What happened?

Many UK restaurants are closing their doors for good at a faster rate, than during the Covid-19 pandemic.

This is down to a mix of staff shortages, a lower demand for bookings and rising energy costs.

Image Courtesy of Tim Mossholder, Pexels

Why have I chosen this story?

I was kind of shocked when I saw this story. It sparked my interest because I work within the hospitality industry (agency) and I like going to eat at restaurants. I'm even trying to branch out and explore more. The fact that many UK restaurants are closing their doors for good, means that there is less choice for consumers to pick from and there's less need for worker

I thought it would be interesting to look into some reasons as to why this is occurring.

Some context:

According to The Guardian, 'Closures in the sector rose by 60%, with 1,567 insolvencies over 2021-2022.' According to a study by Mazars, an advisory firm, this figure is up from 984 during the 2020-2021 period. The figure also includes 453 over the past 3 months.

During the coronavirus pandemic, almost 10,000 licensed premises, which include restaurants and bars, shut their doors for good. However, the figure was kept low, due to schemes, such as the furlough scheme, which kept many businesses afloat, meant that many people could keep their jobs, and meant that people could continue to order from them.

UK Hospitality and other industry lobby groups have stated that more than a third of hospitality businesses could go bust in early 2023.

The rise in insolvencies has risen since March 2022, which is when government protection against back rent owed to landlord expired. The governments Commercial Rent (Coronavirus) Bill came into force on the 25th March 2022, and meant that landlord were no longer barred from taking action on unpaid rent from outside of the "protected period" (This was from the 20 March 2022- 21 June 2021).

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Possible factors as to why:

- Staff shortages. During the Covid-19 pandemic, many people were made redundant from their jobs, or decided to leave the hospitality industry all together. This is something that is still occurring post-lockdown, and could even intensify as a recession is basically here. Brexit can be said to be another reason as to why there are staff shortages within the industry.

Staff are leaving in record numbers and it's costing the industry £21bn in lost revenue. A joint survey found that this trend has pushed 45% of operators to decrease their capacity or trading hours in order to get by.

- A lower demand for bookings. With inflation currently at 11.1%, the interest rate at 3% and a cost of living crisis, many people are being more cautious about how they spend their money. Going out to eat at a restaurant is probably not high on people's lists of what to spend their hard earned money on.

Lots of restaurants have had to increase the price on their menu and/or reduce the amount of options customers have, and this has had a negative effect on some. Many people are now saving money by cooking more at home or ordering less frequently (or not at all).

- Rising energy costs. Rising energy bills are not just affecting the everyday person, they're affecting businesses of all sizes too. According to the Insolvency Service, insolvencies of bars, restaurants and bars have increased by 59% in the past year. In general, energy bills are apart of a businesses operating costs and it can't be ignored.

Image Courtesy of Igor Starkov, Pexels

Analysis (S.W.O.T):

S- I think the bigger and more well-known restaurants are managing to stay afloat. People are still dining out, but just in lower numbers. I think that this may be a temporary trend. Even though the smaller and more local restaurants may be struggling more in comparison to their bigger rivals, the Christmas period may extend the lifeline for many, as people want to go out and dine during the festive season.

W- It's the smaller and more local restaurants that are feeling more of the effects. Such stores tend to be family-owned or run independently, and this can have a detrimental effect when hard times, like what we're experiencing now, come around. With more closures, mean that people lose their jobs, and it could deter such people from working within the hospitality sector in the future. Amid the recession we're essentially already in, I think many restaurants will have to make tough choices (such as letting some workers be made redundant), in order to save as much money as they can and reduce their already higher than usual operating costs.

O- For those restaurants who are struggling, I think this is an apt time for them to re-think how their business operates, consider their most profitable (and loss-making) parts of the business and strategies. Tough situations often call for tough choices, and many may have to make choices going into the new year

T- A recession is here, and these usually come with job cuts. Job cuts lead to higher rates of unemployment, and in the UK, this figure current stands at 3.6%. With an industry that is already seeing a record amount of people leaving the industry, and a combination of other factors, such as real wages lagging behind inflation and/or demand for higher wages , we could see the hospitality industry take a sharp dive, not just in terms of the amount of staff they have, but also in the amount of revenue they bring.

Image Courtesy of MART PRODUCTION, Pexels

My thoughts:

I think that many restaurants, big and small, will continue to struggle in the months ahead. I don't see energy costs falling fast anytime soon. However, I don't think it's all doom and gloom.

The government is help though-The Energy Relief Bill Scheme will remain as it is, until 31 March 2023. However, come April 2023, there'll be the expectation that the government will help the businesses that are the most vulnerable.

That's it for this week! What are your thoughts on the story? Do you think that more restaurants will shut their doors for good, amid the impending recession?