Will we see a rise in restaurant insolvency in the New Year?

27th January 2015

It will be interesting to see how the hotel, pub and restaurant sectors have fared after the traditionally busy Christmas and New Year season is over. This is a traditionally volatile sector, characterised by a high volume of start-ups and failure rates, where operators are vulnerable to the ebb and flow in consumer spending.

The Exaro Insolvency index uses data from the London, Edinburgh and Belfast Gazettes. This is combined with information from Companies House to provide a comprehensive daily data service tracking UK insolvencies.

According to the Index, there was a 28% rise in insolvencies in the sector in September 2014 compared to September 2013 while insolvencies are falling in other sectors.

The British Hospitality Association, however, argues that this is a dynamic sector characterised by a high volume of start-ups and of entrepreneurs wanting to “try their hand in hospitality”. Maybe so, but small single unit operators find it very difficult to obtain the level of discounts that larger chains can obtain.

This is most likely to be the case for the High Street restaurant. Quarter day rents are traditionally due in December and business rates are a particular concern for all High Street traders. The announcement in the Chancellor’s Autumn Statement of an additional £500 of relief in High Street business rates will help, but in reality wholesale reform of the rating system is needed and there is no political will pending the forthcoming election.

While the record consumer activity during the Black Friday sale was a positive trend for many consumer businesses, it remains to be seen whether this was prudent buying or whether the level of seasonal spending was sustained and how the restaurant industry has fared.

In our experience of dealing with restaurants facing difficulties, one crucial factor has been to keep a detailed eye on cash flow. This includes monitoring front of house staff especially where customers pay in cash. In our recent dealings with a number of retail businesses, we have found that remotely monitored web cams above tills is worth considering, especially for the entrepreneur who perhaps has put in the investment but cannot always be on the premises. As they say, ‘every little helps’.