Harris Lipman News

Tough Times For Hospitality Industry

04/08/2009

A leading insolvency expert has called for suppliers and creditors to the restaurant industry to give more leeway to owners as the recession bites – or see more businesses go to the wall completely.

John Cullen is an insolvency practitioner at the Cardiff office of accountants Harris Lipman, which has already acted as administrator for several firms in the hospitality industry this year. He said the sector as a whole had severe problems with rising costs which the recession meant firms were unable to pass on.

Even where a restaurant or bar appears full, he added, with customers feeling the effects of the economic downturn, the owners may have felt unable to pass on higher food bills, utility costs and rent in their prices, meaning a squeeze on profits.

He said landlords in particular needed to take a more understanding attitude if they wanted to avoid being left with empty properties on their hands.

He added: “People are spending less or staying at home, meaning that increasing costs are matched by decreasing turnover. In addition, the effect of the smoking ban is still being felt with some business, such as bingo halls, struggling more than others.

“However, we’ve also seen examples where otherwise viable businesses have been forced to close because of the very high rents still being charged in the sector, and it seems some landlords are more willing to pay empty rates, insurance and security costs for a property, than show a little flexibility to help a professional business to continue.”

On a more positive note, Mr Cullen said some restaurant owners were coming up with innovative solutions to their current problems, and those that made the effort at this stage would be well-placed to benefit when the business environment improved.

He added: “Restaurant owners are still coming up with innovative solutions to these problems. Tapping into one-off events such as a sporting event or concert can give a big boost to income.  However, if these events are under-resourced in any way, be it staffing or food, more harm than good can come of it as it damages the chances of repeat business.  In a more difficult world, the restaurant has to be different to its rivals, whether that be cheaper, more exclusive, better, trendier or friendlier.

“Restaurants are having to be different to maintain their income.  Staying the same may entail accepting the loss of revenue. However, cost-cutting only goes so far as cuts in staff or food only work if the customer remains satisfied. In addition, does cutting the advertising budget result in a loss of future income? Meal deals are all the rage at present, with remarkably affordable deals being offered on a chosen range.

“There are signs now that customers are beginning to venture out again, at least those who do not feel insecure in their own job. Those restaurants that survive will be stronger and fitter for the future.”

For more information please contact Harris Lipman on 020 8446 9000.

 

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