Insolvencies in the Hospitality Sector – Is Covid-19 an Existential Threat?

Up to 20% of hospitality businesses in the Bournemouth Area Could Close, With Recovery Taking up to 3 Years. A Report by our Insolvency Practitioners

We read and watch much on-line about the magnificent efforts of the NHS and all health and care workers in looking after us and helping us to stay safe. However, as the first small steps of the easing of lockdown are implemented – the end of the beginning? – attention is turning to the prospects for businesses going forward. In this article our insolvency practitioners share an interview with an industry expert Simon Scarborough, a business consultant with nearly 30 years of experience in the hospitality industry in and around Bournemouth and the South Coast.

We already know that the hospitality industry will be one of the hardest hit by the lockdown. It seems unlikely that there will be any sort of return to pubs, hotels and eating in restaurants before early July, and even then, there will be restrictions. Simon points out some of the more industry-specific issues that the local hospitality sector will face as it comes out of lockdown, and, of course, as Government support begins to wind down. The stark reality is that up to 20% of hospitality businesses in Dorset are going to struggle to survive, and that full recovery for the rest could take up to 3 years. We conclude with some thoughts, as insolvency practitioners, on the options for businesses as they prepare for the post lockdown world.

The Specific Challenges Faced by Hospitality Businesses in Dorset

Simon started by commenting on the difficult position many hospitality businesses were already in because of the bad winter.

“The Hospitality industry has been one of the hardest hit by Covid 19 and to compound this for the Bournemouth Christchurch and Poole conurbation, the industry is also affected greatly by the weather.

The winter just gone has been one of the worst for years and many hospitality businesses were already struggling and waiting for the good weather to inject much needed revenue even before the arrival of the Virus.

Due to lockdown starting on the 24th March, many businesses, especially in the hospitality sector, have not been able to capitalise on the fantastic weather that started during the first week of lockdown. Easter was boiling hot and May also has been good to date…… It’s a story of lost revenue that they will never be able to claw back.”

There are no Quick Wins for the Industry

“If all sectors of the hospitality industry can re-open on the 4th July, and let’s not forget it’s a big “IF”, the concern for the industry is that its constituent businesses will not have a long and strong enough season to be financially secure for the winter months.

Redundancies in the sector are highly likely without the Furlough scheme. As an example, a group of restaurants in the area which employs 110 staff, will only need to employ 12 if they open as a takeaway only for an extended period. It seems likely that hospitality businesses will need to have Furlough in place till at least the end of the year. Furlough will need to be flexible allowing teams of Staff to go on and come off the scheme subject to business demands and following government guidelines on keeping employees safe.

When it comes to hotels, without borrowing, 50% occupancy is generally considered to be the break-even position. Occupancy has been zero during lockdown and is unlikely to rise to 50% any time soon.

And of course, how much will customers’ tastes and behaviour have changed by lockdown, having got used to saving money and cooking more meals at home? And will they be prepared to venture out again in growing numbers as lockdown is eased?

So, there are no quick wins for the industry and realistically the consensus is that it will be 3 years before the industry is as financially successful as in previous years.”

How the Industry Responds is Critical

Quite apart from how each individual business approaches its post lockdown future, Simon  suggests that each sector has an important role to play in implementing actions designed to increase consumer confidence that restaurants, pubs, and hotels are safe to go to. He uses this example for hotels:

“Theo Lakimov General Manager of the Miramar Hotel, Rosie Radwell MD of the Marsham Court Hotel and I have written a “code of action ” for the hotel industry which we want all hotels in the area to adopt, giving our future guests confidence in staying in the area and confidence in the safety of our hotels.

We would like the system to be accredited and for hotels to display this accreditation on their website and inside their establishments.”

Ultimately, however, he points out that post lockdown……..

“….the only way the hospitality industry is going to survive is for banks to be supportive and for government to continue its assistance with a long term, practical and flexible Furlough scheme.”

Making the Right Decisions Can Be Difficult – Insolvency Practitioners can Help

As Simon has shown, the hospitality industry in the Dorset area and, of course, the whole country is in for a long and difficult ride. Sadly, it is inevitable that there will be large numbers of insolvencies. Some businesses will simply make a knee-jerk reaction and decide to wind their businesses up. As insolvency practitioners, with offices in Bournemouth, London, Croydon, Salisbury and Brentwood, our role is to make such liquidations as pain and stress free as possible.

However, our job is also to help businesses to survive. Many businesses will be just around or a little below breaking even, and, with the right help and advice will survive. Some will do so because of government support along with that of their banks. Others will do so by restructuring their business. We can help.

Now is the time to look at your business and decide whether you carry on, with whatever restructuring is needed, or not. We understand that time is short for many businesses, but taking the right decisions is just as important, and this is where we can help businesses right now with our FREE Full Business Review.

Call us on 01202 551193 or contact us and we will set a date to talk and start the process.