The unseasonably warm September, combined with greater disposable income resulting from a low inflationary economy, as well as the positive impact of the Rugby World Cup provided a much needed boost to the fortunes of the UK’s bars and restaurants sector during the final weeks of the third quarter, reveals new data from business recovery specialists Begbies Traynor.
According to Begbies Traynor's Red Flag Alert research for Q3 2015, which monitors the financial health of UK companies, levels of ‘Significant’ financial distress among UK bars and restaurants decreased 4% to 14,229 businesses over the past three months (Q2 2015: 14,780), as the late onset of autumn coupled with falling prices, particularly at the forecourts meant consumers had greater spending power which ensured that the sector finished the quarter with a bang.
However, this improvement masks a worrying trend bubbling beneath the surface as levels of financial distress in the sector are still a massive 48% higher than last year (Q3 2014: 9,643 businesses), with SMEs making up 98% of the industry’s struggling businesses.
With increased competition from supermarket meal and alcohol promotions and with a workforce made up almost entirely of minimum wage employees, Begbies Traynor warns that the sector faces serious challenges ahead that could result in more business failures next year, particularly when the new national living wage comes into force in April 2016.
Julie Palmer, Partner at Begbies Traynor, said:
“September’s Indian summer, cheap fuel prices and the much anticipated Rugby World Cup created a halo affect over the final weeks of the third quarter, helping to push the bars and restaurants sector into positive territory ahead of the peak Christmas trading period. Combined with this, economic instability and migrant issues in Greece, as well as security concerns following terrorist attacks in well-trodden tourist destinations such as Tunisia, meant that many Brits chose to stay closer to home this summer, boosting the UK hospitality sector still further.
“However, the industry shouldn’t become complacent, believing that this momentum will continue, as the sector is still suffering from significantly higher levels of financial distress than it was at this stage last year. While most bars and restaurants can look forward to higher footfall during the festive period, Q1 is a notoriously difficult period for the sector as consumers batten down the hatches after stretching their finances over Christmas.
“2016 will be the real test for the industry. The sector is built around a model of tight margins and low staff costs, which means that when the increase in the national living wage is implemented in April, many businesses will be forced to make the difficult decision of either cutting staff to keep costs down or risk immediately falling into the red.”
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