The latest figures show that there was an increase of 10% in the number of pub and restaurant businesses entering insolvency during 2019. This figure doesn’t take into account the steep decline in business during the COVID-19 crisis and subsequent lockdown. When the situation stabilises, it’s likely that many more leisure businesses will be unable to survive.
2019 leisure insolvencies
Figures realised by UHY Hacker Younger highlight the extensive problems facing companies in the restaurant and pub trade. Last year, 1,452 restaurant businesses and 526 pub businesses entered insolvency.
Both sectors saw a 10% rise in the number of businesses becoming insolvent. The rates are now at the highest level for five years in the restaurant industry and for four years across pub businesses.
With the industry already in such a precarious position prior to the coronavirus pandemic, it’s expected that it will suffer heavily from the crisis. With the government instruction that all pubs and restaurants across the country should close, those already in financial difficulties, and even some of those who were in a relatively healthy position, may be unable to survive the lockdown.
The coronavirus effect
There has already been some big name companies that have announced they are closing since the start of the coronavirus crisis. This includes Carluccio’s, which has appointed administrators, and The Restaurant Group has said that the majority of their Chiquito sites won’t reopen after the lockdown.
If the self-isolation restrictions are extended for longer than the initial three week period, many more leisure businesses, including some large chains, could be forced to close for good.
Peter Kubik, Partner at UHY Hacker Young’s London office, said “There are few sectors that are going to be more heavily impacted than pubs and small restaurants. Most other businesses can shift their staff to home working or sell through the internet. Clearly that is not possible for pubs.”
“For those restaurants that decide to carry on selling takeaway food they face the problem of having to give delivery companies a very large percentage of their remaining income.”
“Both the pub and restaurant industry feel they need more specific assistance from the Government.”
Support for restaurants and pubs
As part of the government’s support for businesses during the coronavirus crisis, there is some help available for those in the leisure industry. This includes a 12 month business rates holiday for all hospitality and leisure businesses in England; grants of £25,000 for businesses in the sector with a rateable value between £15,000 and £51,000; and the Coronavirus Job Retention scheme, which pays 80% of wages for furloughed employees.
For more information on the government’s coronavirus support, visit the Gov.uk website.
However, some feel that this doesn’t go far enough and that it won’t help prevent businesses from folding.
One of the problems facing companies, including those in the restaurant and pub sector, is the difficulties accessing the emergency loan scheme. The money from this is being filtered through to small businesses via accredited lenders. However, for many small leisure companies they don’t have access to the mainstream loan market and have typically used second tier lenders – who haven’t made it onto the accredited list.
Kubrik adds “Small restaurant and pub companies are also going to worry that banks will prefer to lend to the biggest and best capitalised companies in their category, who are in less need of emergency loans.”
“The Government has already done a lot by suspending business rates and VAT payments and offering wage subsidies to help ease the burden on businesses. However, their next step should be ensuring the health of the long list of businesses that banks still won’t lend to even under the new scheme.”
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