Credit Management July and August 2020

SECTOR COMMENT
DINING OUT
Has the restaurant industry had its chips?
AUTHOR – Peter Kubik
THE restaurant industry is
suffering, with the UK’s
Top 100 restaurant groups
making a loss of circa
£151m last year. This
was partly due to costs
associated with the increase in minimum
wage from £7.83 to £8.21 in April 2019,
alongside high rents affecting the high
street in general.
High and rising costs were not the only
problems restaurants faced. Many also
face stiff competition not only with other
restaurant businesses, but with other
branches of their own restaurants located
in close proximity.
The impact that cost and competition is
having on the restaurant industry is clear
for all to see. Insolvencies in the year to
June 2019 increased by 25 percent and
were at their highest since 2014. Now, due
to COVID-19, we can only expect these
figures to increase.
FORCED CLOSURES
From early-March 2020, the public was
advised to avoid the hospitality industry
and restaurants were subsequently forced
to close their doors on 20 March 2020.
Albeit, some were able to continue trading
through delivery/collection services.
The government introduced various
methods to help restaurant businesses
survive, including the furlough scheme,
deferring payment of VAT due between
20 March and 30 June 2020, automatic
business rates relief and grants of up to
£25,000.
However, little has been done regarding
rent reductions which is arguably
a restaurant’s highest cost, leaving
businesses trying to negotiate new terms
with their landlords.
Some restaurants have sought
restructuring advice to introduce new
cost-cutting measures, such as requesting
a rent reduction from their landlord or
negotiating new terms such as linking rent
to turnover. Many restaurant chains have
significant finance costs which still need
to be paid, unless a new arrangement can
be met with their funders.
However, due to the historic increase
in losses, many restaurants will have
no reserves to meet on-going liabilities,
meaning there is great uncertainty as to
how they will survive during lockdown.
GREEN LIGHT
Once restaurants are given the green light
to reopen, which at the earliest will be in
a few days time, restaurants will need to
adapt to social distancing rules put forth
by the government, for both customers
and their staff.
It is anticipated that restaurants will
not be able to open at full capacity as
there will be a requirement to keep each
table at a safe distance from others. This
could reduce the headcount by around 50
percent. Restaurants are likely to struggle
to adhere to social distancing measures,
particularly with their kitchen staff,
and may need to introduce new trading
models.
It is likely that restaurants with an
outside seating area will be able to
welcome more customers, as transmission
of coronavirus is lower.
Other measures that restaurants may
need to take include, only accepting
card payments, readily available hand
sanitisers, the removal of condiments
from tables, providing cutlery only when
the food is ready and deep cleaning of the
premises on a daily basis. Some of these
measures could increase business costs
for the foreseeable future.
Even upon reopening, it is likely there
will be a reduction in footfall as members
of the public may be cautious about
eating out and being in close proximity
to others. This may also be the case due
to the increasing popularity of restaurant
delivery apps, which continues to eat into
the turnover of restaurant dining.
LOOKING AHEAD
Restaurants will need to have a plan in
place outlining how they will fund the
business once they reopen. Any deferred
VAT and rent will be due, historic creditors
will need to be paid, produce will need to
be purchased, and staff costs will begin
to be reintroduced. Staffing levels may
also need to be reduced, meaning any
costs associated with redundancies and
closures of loss-making sites will need to
be paid on a reduced turnover.
In order to navigate through these
changes, forecasts will have to be
carefully prepared. Many companies may
have to consider Company Voluntary
Arrangements, a formal repayment
scheme which has previously been used
by several high street chains.
Peter Kubik is Partner at UHY Hacker
Young, the national accountancy firm
Advancing the credit profession / www.cicm.com / July & August 2020 / PAGE 21