Market Recovery Monitor – Deep industry disruption curtails hospitality’s recovery from COVID

The road to recovery for the hospitality was never going to be one without further obstacles along the way.

After 18 months of predominantly trading limbo, the lifting of restrictions in July was set to mark the start of the first significant steps in bouncing back. However, further disruption has piled on the pressure in addition to the lasting effects of the pandemic.

October’s Market Recovery Monitor has revealed that the hospitality industry is almost 1,000 sites lighter at the end of September than it was at the end of July, despite full trading conditions in effect over the summer. 

The July-September net closures figure of 980 sites (0.9%) – an average of 16 a day – has pushed the total net closures in Britain perilously close to a grim milestone of 10,000 sites since March 2020.

These figures are a harsh reminder, if needed, that the full lifting of restrictions did not signal an end to the challenges faced by operators. The summer was characterised by issues around labour shortages and supply chain complications, which have run into the autumn and show little sign of easing in the short term.

While many groups are reporting robust sales and strong consumer demand, the fact remains that inflationary pressures are squeezing margins and operational costs are escalating. Combined with this month’s VAT increase and the end of the furlough scheme, operators face renewed headwinds that offset some of the optimism from strong demand as the key festive trading period approaches.

Nightclubs in particular are a stark case in point. Despite being able to trade from July, Britain’s total number has dipped by nearly 100 to just over 1,000 by September – equivalent to almost one in 10 sites closing in the past two months alone. Demand remains strong but with staff shortages, utility cost inflation and supply chain disruption, there are renewed efforts to secure continued government support to the industry to help it weather this storm as the reopening and rehabilitation process continues through what may be a challenging winter.

Analysis of all closures over the past 18 months reveals how the pandemic has been largely indiscriminate and inflicted significant damage across the board. Net closures across sites of all quality, from city-centre fine dining venues to local community pubs, closely reflect the overall 8.6% contraction in site numbers versus pre-COVID times.

This shakedown does, however, present a host of opportunities for a select group of ambitious operators. There are genuine prospects to accelerate growth during this period through opportunistic expansion or acquisitions, and conversations with investors show a healthy appetite for deal activity. And if targeted government support – including potentially more VAT and rates relief – can protect more operators who are teetering on the precipice of closure, a much brighter 2022 may lie ahead.