Current market position
These are deeply challenging times for anyone running a pub, bar or restaurant in the UK. The second half of 2022 saw the number of licensed premises fall by 3,841 (3.6%) according to research by Alix Partners. That’s 18 sites a day closing. Since the start of the pandemic a net 13,037 have closed, leaving the trade more than 11% smaller. Independent sites have been particularly badly hit, not having the same financial resources of the chains. They were down by 6% alone in 2022. Insolvencies of pub and bar companies went up by 83% in 2022.
Covid disruption is now largely history, apart from changes to working patterns in cities, but the current economic crisis is not just the scary present, it threatens to be a grim future too. Customers have less to spend, staff are in desperately short supply and both interest costs and input prices have soared. By the end of 2022, energy costs had gone from the fourth-largest cost a year earlier at about 4% or 5% of turnover, to being the second largest and 16%, according to UK hospitality. They are due to increase still further in April, when government price support will be slashed by over 80%.
Eight key areas to monitor and manage for business survival
1. Reviewing opening hours
Many licensed premises now have restricted opening hours not only to match fragile customer demand with supply, but to eke out scarce staff resources and limit energy bills. They may need to go further or to refine their opening times yet more. Rural and tourist-dominated areas are even seeing a return to seasonal opening, with pubs going ‘dark’ in winter months.
2. Don’t dump marketing
Cash flow and profitability pressures often tempt business owners to cut back on marketing, but this is almost always throwing the baby out with the bathwater. It has never been more vital to be on potential customers’ radar and to provide the sort of promotional discounts and freebies that can pull people in.
3. Keeping hold of great staff
Without staff, there isn’t a hospitality business, but with demotivated and under-skilled staff there won’t be enough customers nor any profits. Everything possible must be done to retain good staff and make the business an attractive place to work for new recruits. Staff need to feel loved; they must buy into the offering, and they should be made to feel more than just hired hands.
4. Maintaining a positive customer experience
Never before has positive customer experience been so important to the success of a hospitality business but never has it been so difficult to deliver, especially with staffing pressures. Every aspect has to be right – the ‘front of house’ experience with meeters and greeters, the servers or bar staff, the quality of the drinks and food and probably most important of all, how customer unhappiness or complaints are dealt with.
You may also be interested in: What are your options if you cannot repay your Bounce Back Loan?
5. Being food-led vs. drinks-led?
Closures among food-led premises in 2022 were higher than for drinks-led. Independent food-led businesses closed at three times the rate of those that were drink-led. Does the offering have to be quite so food-led, with all the waste and the issues with suitably skilled staff? London and other cities are seeing a move to drinks-led formats with only limited menus, mainly focused on sharing plates which can be more a case of ingredient assembly than high level cooking and should mean lower energy usage.
6. Preserving profit margins
It’s always a balancing act between raising prices and putting off customers, but this is not a voluntary sector charity activity, it’s a serious business. Community pubs (18% of the market) have a different model, but even they must cover costs to survive. If prices can’t be hiked sufficiently, then what can be done about direct costs for drinks and food ingredients? Here too there is a trade off between customer choice, quality and profitability. Difficult as it may be, principles about ethically-produced and locally-sourced products may have to be sacrificed, at least to some extent. These may not matter as much to customers as they do to owners.
7. Paying HMRC bills
One of the biggest cash outflows in this sector are the monthly PAYE and quarterly VAT liabilities. Tempting as it may be to use these as cash flow management tools, beware of the recent hardening of attitudes to arrears and debt collection at HMRC. After a period of commendable indulgence during the pandemic, HMRC have become far more proactive.
8. Managing loan repayments and interest costs
Borrowings have soared in the hospitality trade since the start of the pandemic, much of the new debt coming through the various government-backed Coronavirus loan schemes. Our review of the sector in August 2022 confirmed that borrowings for smaller businesses had risen by between 155% and 252%. Unfortunately, since then interest rates have soared, adding yet further to outgoings. The obvious question is whether these can be refinanced, leading to less cash flow stress and lower drag on profits?
Stepping back and looking at the overall picture
Somewhat like latter day Fagins, pub, bar and restaurant owners need constantly to be ‘reviewing the situation’. This is easier said than done in an industry where management is such a relentless treadmill of long hours and endless administration, so calling in external help may be wise, whether it is just to be a sounding board or to help prepare a full scale commercial and financial state of play and forecast.
Outside experts can bring their wealth of specialist experience and their knowledge of new ideas in the sector and judgments on how appropriate they could be to a particular business.
How we can help
We have extensive experience in working with businesses in the hospitality industry, and we will always work with you to find the best solution for you and your business.
One of our Partners would be more than happy to have a non-obligatory confidential chat with you. We can be contacted at firstname.lastname@example.org or call us on 020 3326 6454 and we will arrange for a call with one of our Partners.