ICAEW.com works better with JavaScript enabled.

Hospitality in crisis: helping clients through the turmoil

Author: ICAEW Insights

Published: 27 Feb 2024

Economic strains have sparked a ‘bloodbath’ in hospitality, with scores of closures already this year. How can accountants help their clients weather the storm?

For some of the UK’s most renowned chefs, the festive period was anything but. Within days of each other, acclaimed cook James Allcock’s The Pig & Whistle, former MasterChef finalist Tony Rodd’s Copper & Ink and Channel 4 Sunday Brunch co-presenter Simon Rimmer’s Greens all shut up shop. The latter had been trading for 33 years.

In lengthy X (formerly Twitter) threads and subdued media appearances, Allcock, Rodd and Rimmer cited broad macroeconomic trends as the reasons for their outlets’ closures.

Rodd called for an immediate drop in VAT. He also explained how restaurants are currently forced to divide turnover from bills: 20% VAT, 30% food and drink costs and 40% staff costs. “That leaves 10% for rent, energy, business rates, contracts and everything else,” he wrote. “That’s an impossible task, especially when energy prices are so high.”

Rimmer, meanwhile, told Good Morning Britain that a recent 35% rent hike had made Greens “unviable”.

During the first week of January alone, award-winning chef Andy Lennox had counted around 100 closures of UK food and beverage outlets. “It’s a bloodbath,” he posted.

Real-time figures

Kate Nicholls OBE, CEO of industry lobbyist group UKHospitality, says contraction in the sector in the year to September 2023 stems as much from a lack of expansions and openings as outright closures, a trend that “should have alarm bells ringing” about UK economic growth.

Jane Pendlebury, Chief Executive of industry body HOSPA, agrees: “The impact of increased rent and ever-growing running costs is truly heartbreaking to see, and the magnitude of the issue continues to grow. The root of the problem tends not to be the revenue figure. It is predominantly the bottom line, which has been eroded by so many increasing costs.”

When working with hospitality clients, accountants should not overlook the basics of bookkeeping, advises Alexander & Co Partner and ACA Chartered Accountant Emma Ball. Owners are often so entrenched in the cut and thrust of front-of-house work that they don’t take a step back to analyse their records, she says.

“Unless owners are in quite a large, multi-site group, they’ll tend not to have an in-house bookkeeper. They may rely on small-scale providers looking in now and then, who won’t necessarily have thorough accounting experience. And if they can only get a slot, say, every fortnight or month, they’re not looking at their figures in real time.”

Rigorous bookkeeping supported by appropriate software will help owners keep on top of factors such as pricing, average spend and wet and dry margins. It will also identify feasible promotional opportunities.

Careful planning

Despite the doom and gloom, Leighton Bower, Managing Partner at Rouse Partners, believes there are still opportunities for restaurants that understand their marketplace. Strategically, that requires homing in on what the business model should look like, he says. 

Bower’s firm has clients in niche cuisine markets, where trade revolves around quicker turnarounds. That steady rhythm enables owners to make the most out of covers. He has also seen movement towards vegan and rice-based segments, where margins tend to be higher than those seen in traditional fare.

Accountants should also encourage owners to examine their premises. “They may have a wonderful space that they’re not utilising properly,” Bower says. “Perhaps their dining area is only part of an events-type business that also includes a bar and other facilities and, as a whole, it’s just not working.”

Delivery services must be carefully planned – again with the outlet’s design in mind. In an intimate setting, he points out, diners may not want to see an imposing, leather-clad rider in a crash helmet barging through the front door every five minutes. So, could your client manage deliveries out of another part of the restaurant?

Similar thinking must be applied to the tech-based side of delivery. “One of my clients recently decided to set up their own app and hire riders,” Bower says. “The motivation was not wanting to pay the percentage charge for one of the main delivery brands. Until that’s fully up and running, it won’t be economical. My take was: ‘That’s great – but if none of the high-profile fast food brands have their own apps and are happily using Uber Eats or Deliveroo, why is yours going to work?’ If your cuisine is relatively niche, you’ll surely get more hits on a big app because you’ll have less competition.”

Future scenarios

Location is another major business consideration. “What works in one area may not work elsewhere,” Bower says. “You may have a London-based chain that decides to open an outlet in Bristol, providing much the same experience, and it can’t connect. It may not find the clientele who can keep up the flow of covers required to pay the rent.”

In his view, when it comes to any big decision around premises, people, cuisine, location or technology: “There’s no such thing as a bad idea – just bad timing.”

For Monahans Partner Simon Cooper, the sector’s prospects are not as downbeat as they may seem; 2023 was a positive year for inbound travel, with 37.5 million visitors expected to come to the UK. Meanwhile, spending sentiment shows that, even though times are tough, people still value spending time with family and friends in social settings.

Exploring fluctuations in seasonal demand is a good place for hospitality businesses to start planning for the next 18 months, he says. “Systems that enable you to run reports on future scenarios can give you a more accurate picture of money coming in and overall expenditure. Accountants can help to set those systems up – or they can advise on appropriate software packages to facilitate the process.”

To minimise the adverse effects of no-shows on stock control and revenue, HOSPA’s Pendlebury urges owners to invest in efficient booking systems. Similarly, effective rota management will help outlets maintain high-quality service without overspending on needless wages.

She also stresses the importance of marketing. “While it may seem an easy option to revoke funding for this, it is more important than ever to stand out from the crowd. Get creative, harness different social media platforms and stay abreast of growing trends. It could have a huge impact on your business.”

Looking at the broader state of the sector, Pendlebury says the current economic landscape means that things change quickly. “We are a forward-thinking industry and with every challenge comes a new opportunity. HOSPA President and veteran hotelier Harry Murray MBE phrased it perfectly at our annual conference last year, stating: ‘The hospitality industry is in good and capable hands.’ I would like to echo his sentiment.”

Join our hospitality community

ICAEW's Travel, Tourism & Hospitality community offers finance professionals in these sectors the latest news and developments. Membership is free and open to everyone.

Travel, Tourism & Hospitality polaroid

ICAEW Manifesto

ICAEW sets out its vision for a renewed and resilient UK, drawing on insights and expertise from its members.

Manifesto 2024: ICAEW's vision for a renewed and resilient UK

Further support

Resources for ICAEW members in business
Business support

Thought leadership, insights, technical resources and professional guidance to support ICAEW members working in industry with their professional development.

Browse resources
Strategy, risk and innovation

Driving your business in the right direction with key resources to help you run your business in the most effective manner.

Financial management graphic
Financial management

Maintaining financial discipline in your organisation and propelling you to the next level. This area contains several handy resources to ensure your business stays on the right track.

Open AddCPD icon

Add Verified CPD Activity

Introducing AddCPD, a new way to record your CPD activities!

Log in to start using the AddCPD tool. Available only to ICAEW members.

Add this page to your CPD activity

Step 1 of 3
Download recorded
Download not recorded

Please download the related document if you wish to add this activity to your record

What time are you claiming for this activity?
Mandatory fields

Add this page to your CPD activity

Step 2 of 3
Mandatory field

Add activity to my record

Step 3 of 3
Mandatory field

Activity added

An error has occurred
Please try again

If the problem persists please contact our helpline on +44 (0)1908 248 250