How has the retail sector fared over the past five years?

With the latest set of monthly corporate insolvency data being published by the Insolvency Service – we can now finally analyse in full how the full twelve months of 2023 impacted various industrial sectors in the UK and compare it to the previous four years. 

You can read more about how the retail and construction industries fared here.

The latest in the series focuses on the hospitality industry which includes both the  food and beverage service sector and accommodation – which are both classified separately.  

Hospitality Insolvency Figures – 2019 to 2023

2019 2020 2021 2022 2023
Accommodation Totals 172 171 132 189 262
Hotels and similar  144 143 97 125 143
Holiday and other short-stays 12 7 14 20 42
Camping Grounds, recreational vehicle parks and trailer parks 1 3 1 3 41
Other accommodation  15 18 20 41 36
Food and beverage service activities  2,150 1,542 1,542 2,523 3,468
Restaurants and mobile food service activities 1,464 1,041 1,060 1,721 2,419
Event Catering and other food service activities  159 152 202 290 284
Beverage serving activities  527 349 280 512 765
Total 2,322 1,713 1,674 2,712 3,730

All Figures from The Insolvency Service

Looking at the overall number of hospitality insolvencies over the past five years we can see that there was an expected decrease during the COVID-19 pandemic affected years of 2020 and 2021. 

This was primarily due to various support measures including staff furloughs, suspensions of creditor actions including statutory demands and winding up petitions and the creation of generous finance options such as bounce back loans. 

All areas within the hospitality sector saw year-on-year increases in insolvencies from 2021 to 2023. 

Food and beverage service activities were hit the hardest with restaurants and mobile food service activities taking up the biggest proportion of insolvencies over the past five years with 64.8% of the total.

In fact over the course of 2023, 1,932 restaurants entered insolvency, equating to an average of more than five closures per day, up from 3.6 closures per day in 2022.

The number of closures was also up 45% from 2022, when there were 1,332 restaurant insolvencies.

The accomodation sector was also hit strongly with 2023 insolvencies nearly double those recorded in 2021. Camping grounds and trailer park insolvencies rocketed last year going from three in 2022 to 41 in 2023 – an increase of 1,300%!

According to new data, hospitality administrations have also been on the rise. Analysis shows that hospitality was the third highest sector in the UK for administrations. 

The industry accounted for 190 out of 1,641 businesses that filed for administration last year, marking a 22% increase compared to 2022 and 91% rise in comparison to 2021.

It is vital that the hospitality industry prepares for another difficult trading period, as administrations are nearing pre-Covid levels (1,794) and more businesses are likely to fail over the coming year.

Spring Budget support?

The chancellor recently announced his Spring Budget for 2024 and has been accused of failing to provide the necessary tax changes needed to protect pubs and restaurants by their various supporters. 

UK Hospitality, the trade body for the sector, said the budget had failed to reduce the escalating costs businesses now face and had done little to “bridge the sector through a difficult period”.

The chancellor announced that the freeze on alcohol duty would be extended until September, a change that is expected to save 3p on a pint of beer.

But hospitality businesses had been calling for a temporary reduction in VAT to 12.5% for the sector as well as a 3% cap on business rates when there is expected to be at least a 6.7% rise confirmed in April.

No relief in sight

Predictions for 2024 suggest that there will be another significant rise in corporate insolvencies this upcoming year with hospitality likely to bear a significant brunt of these.

But what are the specific reasons that make hospitality most likely to be impacted? 

Dependence on consumer spending and confidence

The hospitality industry is reliant on discretionary spending by the public which itself is reliant on people feeling wealthy and well enough to go out and spend money on meals, drinks, nights out and accomodation afterwards. 

During Covid-19 and subsequent lockdowns, because the entire hospitality industry shut down and while most people maintained a level of disposable income due to furlough, they simply got out of the habit of going out and paying for the experience.  Many customers have got used to drinking and eating at home and once instigated, habits are hard to break. 

Seasonality and weather

Some hospitality businesses depending on their location rely heavily on seasonal tourism and customer demand. During off-peak seasons or inclement conditions during peak seasons, these businesses may struggle to generate sufficient revenue to cover their expenses in the down times making them more vulnerable than their year-round compatriots.

Competition

Despite the risks, hospitality remains one of the most competitive industries across the UK, comprising over 143,000 businesses and employing over 1.8 million people. 

With so many businesses fighting for market share in similar locations and with similar products, many small businesses find it difficult to compete against larger chains and each other with unique selling points being diluted or removed thanks to Covid-19.

Economic conditions 

The cost of living crisis has become the main enemy for many hospitality businesses across the UK as many elements play a part making it difficult to keep businesses afloat. 

These include:-

  • Wages rising including rises to the minimum wage and national living wage in April
  • Difficulty and Inability to hire trained and motivated staff due to Brexit and industry wide competition
  • Business rates rising and all covid-era help for the hospitality sector being withdrawn
  • Landlords raising commercial rents to shore up their own financial positions
  • Raw material costs rising with a practical inability to pass the costs on to stretched customers
  • Energy bills are continuing to rise and government support for businesses ending on March 31st
  • Bounce-back loans have to be repaid without a return to previous turnover levels

Even if the economy returns to growth in the next 12 months as expected and people do start to feel better off, this is no guarantee that the sectors will make up the lost ground from the past three years. 

If you run a pub, restaurant or guest house and are still in business then congratulations!

You have got through the worst circumstances your sector has seen in decades and are still serving. 

We’d love to give you more positive news and we might be able to if you get in touch with one of our advisors.

We offer a free initial consultation to help any director or business owner who wants to strengthen their business this year.

Once they get a clearer idea of the unique circumstances facing your business, then they will be able to let you know all options available to you to help strengthen your hand, including many you might not have thought or considered. 

The sooner you get in touch, the earlier you can begin to put these plans into place. 

2024 might yet be the year everything turns around – so do everything you can to make that happen and put better times on your menu.