Is the glass half empty? The future of the hospitality sector

It’s not been a good start to 2018 for many businesses which rely on the public spending money. There have been the high profile retailers which have entered insolvency processes and the hospitality sector has not escaped by any means. Of the major restaurant chains, Byron Burgers was the first victim of 2018, followed closely by Prezzo, Strada and Jamie’s Italian.

At Armstrong Watson, we have been acting for a number of companies that operate in a similar space to the chains mentioned above. On 29 January 2018, Mike Kienlen and Mark Ranson were appointed as Joint Administrators of Ricci’s at Leeds Limited, at the same time as being appointed Joint Administrators over the other companies in the group, Ricci’s Tapas and Cicchetti Limited and Ricci’s 53 Degrees North Limited, with a sale of the latter two businesses being concluded immediately following Mike and Mark’s appointment.

In March, Rob Adamson and Mark Ranson were appointed Joint Administrators of RWB Leisure Limited, which traded under the names “The Bakerie” and “Pie & Ale” in Manchester’s popular Northern Quarter, with both eventually being rescued by separate buyers.

Will casual dining continue to feel the pinch?

With interest rates being held again at 0.5% by the Bank of England, many consumers will be breathing a sigh of relief as it will mean that the potential to get slightly less for your £1 has rescinded for the time being. Those in the hospitality sector will be hoping that consumers will be spending those extra pennies on eating out, which will assist with footfall - a major contributing factor to those struggling to break even in the sector.

The bad news for those businesses will be that consumers are likely to be even more conscious about ensuring that they get value for money, with the overall customer dining experience likely to be a major influence on where the customers decide to spend their cash. Those with the spare cash are likely to be looking for quality, atmosphere and excellent customer service – if a business isn’t strong in those areas, it may in due course impact on the sales.

Is it all doom and gloom?

Most businesses which deal with the public have peaks and troughs in the number of people coming through the doors. Some of the big restaurant chains have been forced to restructure to meet the demands of the changing market, but at the same time, JD Wetherspoon announced that it was seeing an increase in profits, with like for like sales increasing in January 2018, compared with the same period in the previous year. The closure of some of the big name chains has opened doors for different types of restaurant, with “street food” restaurants becoming increasingly popular with both customers and investors. Although our Leisure Sector experts at Armstrong Watson have raised concerns about the ability of these independents to expand into city centre locations due to increasing costs of business rates and rents. Ultimately, these costs are proving to be a real barrier for anyone looking to expand, with landlords looking for significant premiums to secure city centre spots.

Reducing footfall equals squeeze on cash

Whenever we deal with businesses in this sector, the key driver behind financial difficulties can often be attributed to a lack of regular footfall. Whilst business owners may be concentrating on the daily operations, this reduction in numbers through the doors can prove fatal to many businesses, as the cash flow becomes tighter, making it difficult to pay everybody in good time. Suppliers will often continue to be paid as the food and drink is obviously critical to the business.  However this is usually to the detriment of the likes of business rates and HM Revenue and Customs, both of whom business owners should ignore at their peril. Local councils rely on their powers to issue a liability order through the local magistrates’ court if there is non-payment of business rates.  If the bill remains unpaid, they have the power to enforce the liability order by either instructing bailiffs to seize your assets or issuing winding up proceedings against your company.

With respect to HMRC, we are finding that they are using their powers to demand security deposits from business owners more often. This is effectively a bond which they request from businesses which HMRC believe will not pay their Crown liabilities on time. In the case of businesses which rely heavily on cash, such as those in the hospitality sector, the security deposit is becoming more prevalent and, in some cases, can be a pre-requisite to closure, given the amounts requested. If you are struggling to meet your HMRC or business rates liabilities, it is fundamental that you seek advice early to deal with the underlying issues, rather than leaving it too late.

Identifying the issues affecting your business is critical

Things which may impact on your cash flow in addition to the reduced footfall include business rate increases, wage rises (such as the increase in the national minimum wage), pension contribution increases – all things that in themselves seem fairly inconsequential, but added together you will probably find that these are negatively impacting the cash position. This then results in an increased reliance on your overdraft facility or you may find yourself looking for additional finance to assist your working capital to help you pay the next VAT quarter. If you are reading this and these points seem familiar, whether it is your own business, or that of a client, now is the time to take action.

Our experience is that most businesses will leave it to the last minute before trying to resolve their financial difficulties, reducing the options available to resolve the problem. At Armstrong Watson, our aim within the Restructuring, Recovery and Insolvency team is to rescue the business first and we will ensure that you receive the right advice and a clear strategy to help you move forward.

Written by Heather Bamforth, Restructuring, Recovery and Insolvency Manager.

If you relate to any of the situations above and would like more information or advice on what to do next, get in touch with our Restructuring, Recovery and Insolvency team or

email heather

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