More than a fifth of hospitality businesses will struggle to open before the end of 2020, leaving thousands of commercial kitchens lying dormant for at least another six months.
That’s according to a new report from respected industry analyst Simon Stenning, who predicts that it will take time before the sector is fully reopened again.
The ‘Immediate Future of the UK Hospitality/Foodservice Market’ report suggests that 22% of all hospitality outlets will still not be open by the end of this year.
The sector is on course to lose £23 billion in the second half of 2020 as a result of the coronavirus pandemic, achieving just 53% of the income it made last year.
The long-term growth forecasts for the industry are that it will recover to 2019 levels by 2025 at the latest, as the economic impacts linger, but that it will eventually increase to £108 billion by 2030.
Mr Stenning said: “The hospitality industry faces enormous challenges and a worrying situation of losing 47% of normal revenues. It is imperative that the government provides significant levels of support given that it is such an important employer and tax generator.
“This is a cautious, not-overly ambitious forecast, but not the worst-case scenario. All sectors of the industry are affected, and it will take time for consumers to revert to their previous behaviours.
The report also highlights the effects of the contraction on UK plc.
“The significant fall of £23 billion in 2020 alone implies a fall in VAT of £4.6 billion, losing the government significant tax revenues, along with an increase in social costs emanating from the loss of employment from an industry that directly employs over three million workers. It is therefore imperative that the government provides support,” he said.
As well as the economic challenges, the sector faces a major task to convince customers that their venues are safe for guests before they can re-ignite demand for eating and drinking out.
Without this, there is little chance of a recovery and consumers returning to their previous behaviours and frequencies.
Financial modelling in the report shows that despite decreasing headcount, reducing costs and maintaining margins (which will be harder with potential increases in supply chain costs), a restaurant operating on 50% normal sales plunges to a significant loss, and only a rent reduction, rates holiday and drastic salary cuts will enable many restaurants to break even.
Economic challenges include running sites that are operating at sub-optimal financial levels, and potential stand-offs with property landlords over rent reductions to suit reduced levels of trade.
There will also be the expected increase in unemployment dragging down consumer discretionary spending, whether physically reduced, or through exercising more caution.
All together, these economic effects will mean that many sites won’t re-open, or will fail within a few months.
The new normality post-lockdown includes an expected reduction in travelling and commuting by public transport and more working from home, together with dramatic falls in in-bound tourism.
As a result, certain sectors of the market will fare better, including fast food, which will steal share from service-led restaurants, due to its ability to provide takeaway, delivery and drive-thru services, as well as delivering intrinsic value.
The report forecasts that QSR will achieve 77% of normal revenues for the rest of 2020, whereas service-led restaurants will achieve only 48%.
Other sectors to struggle this year include hotels, travel and leisure.
Sectors that are better protected against the impact drivers include contract catering, due to the breadth of services provided: pubs, due to their local nature and potentially benefiting from an increase in staycations, and high street foodservice that provides packaged, value-led products, although city centre footfall will be reduced.