Restaurants hit the hardest by the recession

4th February 2009, 10:59am

UK Restaurants have been hit harder by the recession than any other Hospitality & Leisure (H&L) sector, accounting for 45% of all H&L insolvencies in the quarter before Christmas, PricewaterhouseCoopers LLP (PwC) has revealed.

Only half of these respondees said they would reduce their grocery purchases.

The impact of the downturn is clear in the firm's quarterly insolvency statistics, as 32% more restaurants went bust in 2008 than the previous year. In Q4 of last year 141 restaurants became insolvent as more UK consumers chose to eat in.

Stephen Broome, Hospitality & Leisure (H&L) director, PricewaterhouseCoopers LLP, said: "In addition to a number of expected high-end restaurant failures, those mid-range restaurants that do not focus on either a value for money or a unique dining experience have been disappearing from our streets since last summer. This trend is likely to accelerate."

He continued to say, the market has been flooded with tempting offers such as the M&S dine in for £10 offer, aimed very much at the lucrative weekend dining out market, and our televisions (which we are watching more of) are filled with cookery programmes and food related campaigns, reinforcing the desire and necessity to stay at home and create lower cost but inviting, alternative dining.

Many restaurant businesses are fighting back by offering tempting off-peak price led deals and money off vouchers, and this will help prop up flagging revenues albeit at lower profit margins.

The local or the living room?

To the UK pub industry, 2007 is remembered for two key events, the introduction of the smoking ban and a wet summer with no national presence in the European football championships. Many predicted that 2007 would represent the low point in pub fortunes. However, due to the downturn in consumer confidence and trend towards drinking at home, 2008 has proven to be even worse than 2007 with 64% more pub businesses becoming insolvent than in the previous year.

The failure rate appears to be increasing and in the final quarter of 2008 insolvencies in the sector increased from 64 in Q3 to 74 in the Christmas quarter – an increase of 16%.

Stephen said: "With beer sales falling to a record low and almost 40 pubs closing a week, up from the previous average of 36, we are seeing this trend continue to gather speed. The industry has been ravaged by a combination of negative factors over recent years, and the recession is likely to put further pressure on an already difficult trading environment. We expect our recent prediction of 4000 pub closures by 2010 to sadly remain on course."

However, there is a shred of good news in the recent PwC consumer poll that indicated that people were less willing to reduce their visits to the pub or indeed how much they spend when they are there, and would do so by cutting down on take-aways, fast food and eating out.

"Of course this sentiment may change as more consumers face job threats and experience a reduced income. But for those pubs that get it right, and there are many that do, there is still a loyal customer following to be enjoyed," Stephen added.

Managing in a downturn

Businesses that take the time to fully understand and plan for the impact of the current recession can navigate a path that makes the most of the opportunities arising. For most this will involve developing and implementing a 'back to basics' survival strategy that probably includes selective, non-customer facing cost savings as well as an element of innovation in maintaining revenue and profit levels.

"Those who don't know enough about themselves or markets they serve will be inclined to take the path of least resistance, leading to defensive and piecemeal actions which will result in reduced service levels and disgruntled clients. Most damaging of all, these businesses risk losing out to their competitors," he concluded.

Related Articles:

• 23 Mar 2009 - Smoking ban to blame for pub industry failures
• 02 Mar 2009 - Reputation beats price when dining out

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