Two-thirds of the UK’s top restaurants are in the red after Brexit, Covid and inflation | hospitality industry

Debt payments, staff shortages and rising energy bills have pushed nearly two-thirds of the UK’s top 100 restaurants into the red, according to research revealing the impact of the pandemic, Brexit and the cost of living crisis on the hospitality sector.

With recession looming and increasing energy bills weighing on businesses, a separate report found that £700m of business price relief remains unpaid, with only half of English councils paying the support money.

According to accounting firm UHY Hacker Young, 64% of the largest restaurant companies are now making a loss. Many of them have suffered huge losses due to major restructuring programs undertaken in the wake of the pandemic, and due to debt repayment, especially to landlords.

The restaurant sector had been expecting a rebound in profits in the wake of the pandemic, but this was compromised by spiraling food price inflation and lower consumer confidence caused by higher interest rates.

Restaurants have also been affected by labor shortages, forcing them to restrict covers and thus reduce the amount of revenue they can generate, especially during peak times.

Peter Kubic, partner at UHY Hacker Young, said many in the restaurant sector are concerned about further declines in consumer spending as Britain approaches recession. The Bank of England expects a recession to last more than a year and inflation to rise above 13%.

“It may be a case of ‘out of the pan to the fire’ for many groups of restaurants in the UK,” Kubik said. “They expected and needed higher consumer spending as we put Covid more behind us, but now that spending is likely to come down when it is most needed.”

The restaurant sector was struggling even before the pandemic. Many groups took on large amounts of debt to fuel violent expansion campaigns, leading them to lose even before the virus outbreak triggered closures and temporary restaurant closures.

However, in the long term, many restaurant groups expect to return to profitability, according to the report. Restructuring programs have reduced the size of its debt, while several major chains have closed unprofitable branches and renegotiated rents through voluntary arrangements.

They include The Restaurant Group, which owns the Wagamama and Frankie & Benny chains, and now operates 400 restaurants and pubs.

Meanwhile, only about half of councils in England have started providing support payments to businesses from the £1.5 billion price relief package announced by the government in March 2021, according to a Freedom of Information request filed by property consultancy Gerald Ive.

I asked all 309 councils in England how much they paid local businesses. Of the 219 who responded, only 58% had started paying anything, despite the deadline for completing relief payments in less than two months.

The support package was aimed at businesses such as manufacturers, warehouses and office occupants that were not given any business rate support other than retail, leisure and hospitality retailers.

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Responsive councils that have started paying out up to £667 million of the £1.5 billion funding package but have so far paid just £351 million.

Extrapolating this trend to all 309 councils in England suggests that only up to £790m will be paid by the deadline. The consultancy said any surplus should be returned to the government, and short-change companies around £700m.

Councils that had not made any payments by the time of the FOI request include Cambridge, Cornwall, Dover, Milton Keynes, Sheffield and Wigan as well as Hackney, Hammersmith, Fulham, Hounslow, Kensington and Chelsea in London.

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