The Caterer, Survival guideRead more
What is the biggest financial challenge hospitality owner-operators will face next year?
It is mostly reliant on how the virus situation continues to evolve as well as the tier system. If lockdowns and curfews keep coming and going, we will certainly face issues with wages and rent payments.
For many businesses, the curfews have been worse than the lockdowns. The loss of the post 10 pm covers also means a huge drop on the average ticket, as customers traditionally order less alcohol and fine wines in the earlier evening.
In 2021 we also have to start paying back for bank debts, CBILS, delayed invoices and overdrafts created in 2020.
Finding qualified staff will be difficult for several reasons. First of all, many foreign workers will have left after ending up unemployed, Brexit will kick in, and finally, whoever is still around will have not benefited from any training for the past 12 months due to closures and cost cutting exercises.
If you are planning to raise money for your expansion or CAPEX needs, delay as much as possible. In this market, money is expensive. Meaning that, in return for cash injections, the cost will be either higher in interest rates or amounts of shares. Interest rates are calculated against risk, which is very high nowadays.
The amount of money you can get in return for you shares in your business is linked to future cashflow, and projections are gloomier than ever.
Is there any way to prepare for and mitigate against this?
Financial planning is key. Run at least 3 financial projections with various scenarios. One in which restaurants are fully open from February. Another in which curfew is maintained in Q1 and Q2. And a last one, in which curfews are maintained all year. Based on these sales projections, you should be able to measure your need for restructuring your business, its model and costs.
Keep your staff close to you. Do whatever it takes to try keep your team members with you throughout the crisis, and there could be a massive shortage of staff in 2021.
Be flexible and imaginative. If your kitchen is big enough, consider hosting a second business within it. We did this with ORO our premium sushi delivery business, we shared the kitchen of a renowned fine dining Italian restaurant in Belgravia.
Maintain good relationships with your suppliers. Many restaurants and bars are understandably struggling to pay their bills. Keep talking with your suppliers very regularly and be transparent about your financial situation, even if you are in trouble. Building trust and loyalty will help you build your business back.
Get ready for strong events business. Celebrations and Events had to be put on hold and many will have been postponed to next year. Belated big 40th birthday, postponed weddings and engagement parties. As a result of this “catch-up” effect, expect an events business much higher than pre-covid.
Keep doing what you have learnt so well. Adapt your menu to a changing market, stay agile and review your opening hours on weekly basis if needed.
On a positive note, neighborhood restaurants will keep doing better and better as not everyone will be going back to central London for work and companies will encourage employees to keep working from home post-covid.
If the worst-case scenario of a no-deal Brexit and continued Covid restrictions continue, how bad could things get? Or is there no need for panic?
It is expected that around 70% of hospitality & pub businesses could become unviable and close in 2021 as a result of the pandemic. Added to this, we must foresee the coming domino effect on the property market, banking industry and eventually on the government itself who might not be able to subsidise all the losses and repayment defaults.
As for Brexit, I am reluctant to jump to any conclusions, but it feels like a small hurdle after facing the pandemic.
Yes, we know it will impact cost of goods and recruitment but nothing we can’t manage.
As to the coming staffing issue, following the Covid crisis, many employees of the retail sector and other services will be out of jobs and turning to hospitality.
Once a vaccine arrives, how long will the aftermath of covid continue to affect the industry? Should owner operators be braced for a financial version of long-covid? Or will the industry spring back to health?
I believe the hospitality industry will be one of the first to bounce back. We’ve all realised how much we need human interaction and social outings.
There is no better time to invest than now. Think about it, by 2021, rents will have kept dropping, premiums on existing leases will have disappeared in the majority of cases and competition will be lesser due to all the business closures.
The pandemic has been an opportunity for large diversify holdings to acquire struggling business and I just hope to see many small and independent restaurateurs and bar owners flourish again throughout the country.
Large holdings that are diversified, as well as present on the recently booming online markets, are in a strong position to buy out distressed F&B businesses on the cheap. I hope to see independent small restaurants flourish against the well known principle that one company will own them all.
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