What next for the hospitality industry?

  • Will Wright, Partner |

3 min read

It’s no exaggeration to say the COVID-19 pandemic has turned life for hospitality and leisure operators upside down. National and regional lockdowns, social distancing measures, stay-at-home orders, and travel and mobility restrictions have brought much of the sector to a standstill. After the brief boost provided by the summer Eat Out To Help Out Scheme, the re-introduction of restrictions in the autumn came as a real body blow.

As I write, pubs, bars and restaurants across England will remain closed until 2 December, albeit takeaways, click and collect, drive through and delivery are still allowed. Scotland remains under a five-tier system of local restrictions, with closures mandatory in level 4 areas. Pubs and restaurants in level 2 and 3 areas have restrictions over the provision of alcohol and earlier closing times. Wales recently ended its two-week ‘firebreak’ lockdown and allowed hospitality venues to reopen, subject to adherence to COVID-19 safety measures.

Nimble operators in locked down areas have been able to switch back to providing takeaway services, as well as taking advantage of the increasing popularity of dine-at-home meal kits. However, we all recognise these channels can never make up for the revenues lost while sites remain shuttered. Hospitality chains with multiple outlets across all four corners of the UK are finding it particularly difficult to cope with varying levels of restrictions in different parts of the country.

In what is already a brutal trading environment, the in-out approach to restrictions adds an extra layer of complexity in planning cash flows, budgets and staff requirements. Coupled with this is the fact that we are on the cusp of what is traditionally the busiest – and most crucial – part of the year. For the average operator, between 20 and 30 percent of annual revenues are generated during the festive period.

Once the latest round of restrictions ease, mobilising to re-open and maximise revenue growth in the key Christmas trading period could place enormous pressure on working capital. Decisions on when, how and if units are to be reopened should not be taken lightly. The good news, however, is that operators are now well-versed in the practice of running regular cashflow forecasts and understanding the levers that are available to them in different scenarios. Maintaining this discipline, refreshing contingency plans, and ensuring regular dialogue with stakeholders all remain vital.

The extension and enhancement of Government support measures, most notably grant support and the extension of the Job Retention Scheme and commercial rent protections, have also gone a long way to providing operators with additional breathing space. Nevertheless, we know that at some point, the support schemes will start to unwind, and the repayment of loans, tax arrears and rent will place significant pressure on cash flow once more. Longer-term, operators should think strategically in order to survive. Regaining and maintaining the confidence of customers is key. I think most major players in the industry have done a good job on this front thus far, with increased hygiene and cleanliness measures, PPE for staff, cashless payments and test and trace measures all providing reassurance that pubs, bars and restaurants are putting the safety of customers and staff first.

The path ahead for the hospitality industry remains incredibly rocky. But those operators who are focussed on building financial, operational and commercial resilience, in addition to a focus on the longer-term customer experience, will ensure they put themselves in the best possible position to get through this period of extended uncertainty.

The sector will undoubtedly emerge from this crisis in a very different shape from when we entered. And sadly, I have no doubt that we will see some casualties along the way. But those business that have built resilience into their core and used that as a base from which to adapt and adjust will surely endure.

You can find more detail on KPMG’s Restructuring. Contact the team for help navigating your business through challenging times.