Less than Festive – Sharp increases in hospitality insolvencies pre-ChristmasPosted: Dec 8, 2022

What’s going on in Hospitality?

You cannot help but feel for pubs, restaurants, and other venues. It must feel like the odds are constantly stacked against you if you run a business in that space. When restrictions ended it must have felt like a weight was lifted now, just few months into the same year, the industry is really being hit hard again. According to a recent survey by a combination of industry bodies, 35% of respondents from the hospitality world expected to be running at a loss or looking to close entirely in the very short term.

Hospitality has never been easy, but the current situation is particularly difficult. The rising cost of utilities is a major headache for all venues. Not only has the price of running the premises increased, but the cost of goods has also risen sharply with inflation. Food and drink manufacturers from small independents to larger suppliers are also feeling the effects of an increase in costs and, as you would expect, passing that on to their buyers. In turn, the venues are increasing prices accordingly. The over the bar cost of a pint of beer has risen 9% during 2022. In short, customers are having to pay more but they are being asked to do so at a time when finances are tight for them. As if that wasn’t enough, staff shortages and inconsistent supply are also major headaches.

What can be done?

Well, unfortunately, many of the problems being faced by the hospitality sector are common to all markets and industries. The power needed to keep workplaces open, for example, is an issue for everyone. The reason it feels magnified for hospitality is they are really experiencing the worst of all sides. They are in a world of rising costs trying to sell to a customer base that is unwilling, or unable, to bear that increase as a price at the bar. It is a sad irony that closures were 60% higher this year than in 2020 – 2021 when restrictions and lockdowns were in place.

If you are in a position where things are starting to look difficult, it’s worth taking the time to see if you can cut some costs.

• Bring the staff on board and ask them to help. The front of house and kitchen teams may well be able to offer some advice you can’t get anywhere else. After all, they are the ones who see the day-to-day stuff up close to see where the savings could be.
• Are the ‘must have’ product lines really that important if they are low margin? All businesses are prone to habit when it comes to buying and this is an area where you can accidentally erode margins. A little bit of time examining alternatives to low margin products or checking the actual profit on your sale items could be a real eye opener.
• Portion sizes and freebies are profit black holes. It’s nice to be generous but things like free bar snacks and extra bread on the table can have a surprising effect on your base costs. If you are in the habit of offering a free drink or taking the cost of pudding off a bill if someone complains, it may be time to review that policy.
• Review your staff and available hours. Hospitality teams tend to become quite close and naturally you will want to offer as many hours as possible to the staff, but that may no longer be possible. If you have fewer customers, then unfortunately that may mean shorter shifts or cutting your team a little.
• Do sweat the small stuff. Combining deliveries, buying a different brand of cleaning product, only using the dishwasher when full, taking 1c off the heating and a hundred other small changes will really add up. Big problems sometimes make us look for big solutions when smaller changes could produce big returns.

Finally, be honest with yourself and see your business as if you were a shareholder. What I mean here is to be ruthlessly financially minded and brutally realistic about what the books are telling you. This should be the best time of the year and if it isn’t, or you are only breaking even, the truth is that unless things change, you have a problem.

It never helps to ignore a financial issue so call us and we can talk through your options.