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

Debt repayments, staff shortages and rising energy bills have pushed nearly two-thirds of the UK’s top 100 restaurants into the red, according to a study that reveals the impact of the pandemic, Brexit and the cost of living crisis on the hotel sector.

With a looming recession and further rises in energy bills weighing on businesses, a separate report found that £700m of business rate relief remains unpaid, with only half of English councils disbursing the support funds .

A record 64% of the largest restaurant businesses are now posting losses, according to accountancy firm UHY Hacker Young. Several have suffered heavy losses due to the major restructuring programs undertaken following the pandemic, and due to debt repayments, particularly to owners.

The restaurant industry expected a recovery in profits after the pandemic, but this was undermined by spiraling food inflation and a drop in consumer confidence caused by rising interest rates.

Restaurants have also been hit by labor shortages, forcing them to restrict coverage and therefore reduce the amount of revenue they are able to generate, particularly during peak hours.

Peter Kubik, partner at UHY Hacker Young, said many in the restaurant industry were worried about further declines in consumer spending as Britain edged closer to recession. The Bank of England predicts a recession lasting more than a year and inflation exceeding 13%.

“It can be ‘out of the frying pan, into the fire’ for many UK restaurant groups,” Kubik said. “They expected and needed an increase in consumer spending as we put Covid further behind us, but that spending is now likely to fall when it is most needed.”

The restaurant industry was struggling even before the pandemic. Many groups have taken on debt to fuel aggressive expansion campaigns, pushing them to loss even before the virus outbreak led to temporary restaurant closures and shutdowns.

However, in the longer term, many restaurant groups expect a return to profitability, according to the report. Restructuring programs have reduced the size of their debts, while several large chains have closed unprofitable branches and renegotiated rents through voluntary arrangements.

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

Meanwhile, only around half of councils in England have started making business support payments from a £1.5billion rate relief package announced by the government in March 2021, a revealed a Freedom of Information request made by real estate consultancy Gerald Eve.

He asked the 309 councils in England how much they paid to local businesses. Of the 219 who responded, only 58% have started paying anything, despite a delay in concluding upcoming relief payments in less than two months.

The support program was aimed at businesses such as manufacturers, warehouses and office occupiers who had not received any trade fare assistance unlike retailers, leisure and hospitality.

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Responding councils that have started making payments account for £667m of the £1.5bn funding, but have so far only paid out £351m.

Extrapolating this trend to England’s 309 councils suggests that just £790m will be paid before the deadline. Any surplus must be returned to the government, depriving businesses of around £700million, the consultancy said.

Councils which had made no payments at the time of the FOI request include Cambridge, Cornwall, Dover, Milton Keynes, Sheffield and Wigan as well as Hackney, Hammersmith and Fulham, Hounslow and Kensington and Chelsea in London.

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