Member Article

Restaurant Group's acceleration of restaurant closures may be just the start for UK hospitality industry, warns insolvency expert

The UK’s new points-based immigration system may be a fatal blow for the UK’s hospitality sector among others, says CVR Global’s insolvency expert Ian Defty, who is striving to answer the question that many hotels, restaurants and pubs will be asking themselves: how can we survive?

The new points-based system is a watershed moment in a long-running debate about the impact of immigration on the UK, and while it looks like an attractive model on the surface to entice more skilled workers to the country, it is going to come at a hefty price for hospitality and other sectors that rely heavily on overseas workers.

A clampdown on freedom of movement is inevitably going to shrink the pool of workers on offer to hotel chains, restaurants, and pub landlords.

For years, the variety of the employment market offered from membership of the EU has driven down the labour cost in the industry, but that is about to change.

It is very likely that companies are now going to have to increase the wages that they pay if they want to attract UK-based workers and avoid a looming recruitment crisis.

This likely wage increase couldn’t have come at a worse time. The reality is that any company that is currently making profit isn’t doing so to the point where they can comfortably absorb another major cost.

Just this month we have seen the news that Restaurant Group is planning to accelerate the closure of some of its Frankie & Benny’s and Chiquito restaurants – and while a number of factors come into play for businesses doing this, the consequences of a post-Brexit world – such as the new immigration system – certainly wouldn’t have helped.

Fine margins are being squeezed because of other fixed costs such as rent, business rates and supplier costs. We should also bear in mind that these thin margins are being generated at a time when wages are already quite low.

If businesses fail to prepare, then ultimately, they are preparing to fail, so there are three things that all hospitality businesses should be doing right now.

Forecast. Forecast. Forecast!

Only that way can business owners then make a truly informed decision of where their business’ future lies.

The one cost that companies can control is the amount they are spending on their own workforce, and as the country tightens its own headcount, sadly, those who want to survive in a post-Brexit world will probably have to follow suit.

The sooner this workforce-trimming takes place the better, as the earlier this happens, the more money is saved to help with cashflow and boost margins later down the line.

Equally, as a business owner, cutting down your workforce will also reduce the amount of custom you can accommodate, which will leave a lot of hospitality entrepreneurs no doubt pondering their futures.

The one saving grace for business owners reading this – whether you are a hotel owner or a farmer relying on crop pickers – is the earlier you seek professional advice, the likelier it is that there is a way to keep your business running.

Cost-cutting is the most likely and immediate measure to steady the ship in turbulent waters, but exploring ways of investment and diversification are other potential avenues for recovery.

Sadly, I think we will see a rise in the number of insolvent liquidations throughout the year as hospitality businesses call last orders and wind down in an orderly fashion – with some no longer seeing the benefit of working hard for minimal returns.

This was posted in Bdaily's Members' News section by Matt Joyce .