Hospitality and catering: The struggles caused by Covid-19
17/06/2020
During the Covid-19 pandemic businesses in all industries have suffered, but some have clearly been impacted more than others.
Businesses in the hospitality and catering sector were among the first to be closed as lockdown took hold of the UK, and while some have been able to adapt their offering – for instance many restaurants have been able to offer delivery services – it’s not something that’s possible for every business.
The impact on smaller suppliers, of which these sectors have many, can be even more daunting. For many of these small food and drinks suppliers, one hotel or restaurant may provide the majority of their income, so if that customer is struggling to pay invoices or no longer needs their services, they could find themselves in trouble very quickly.
As lockdown restrictions continue to ease, with many non-essential retail outlets now able to reopen, many businesses in hospitality and catering will still be wondering when and how they will get back to business as usual in a way that’s safe for customers and staff.
What additional challenges do these industries face?
While every business is different, there are some challenges that are more likely to affect the hospitality and catering sector.
Here are just a few examples.
Social distancing
While every business will have to adjust to social distancing, that may prove to be more difficult for some than others. Smaller restaurants for example may have trouble taking enough covers to justify their costs when customers have to be spaced apart. They may also find it difficult to keep staff distanced in smaller kitchens, which may affect the service they can provide.
Hotels could face similar issues where space is limited and may find it difficult to deliver the same services and facilities that they delivered before.
Unpaid rent
For those businesses that rent their commercial property in the hospitality and catering sector, issues may arise from still having to make payments before they are able to get back to work.
Even where payments may have been deferred at the beginning of the pandemic, they are likely to kick back in before these businesses are able to get money flowing through the business again.
Altered payment terms
Another issue many hotels in particular face is altered payment terms from travel firms who had bookings with them.
Some travel firms have altered payment terms and stretched them as far as 120 days after travel, creating a difficult cash flow gap in the best of times and causing major issues for hotels that may already be struggling.
Staff missing out on furlough payments
Many employees in these industries have struggled with the furlough systems that has been put in place for a few reasons. For example, employees may rely on tips to supplement their income, and for some lower paid workers such as waiting staff, this could make up half of the salary they are used to receiving.
With the furlough scheme providing 80% of just their base salary they could find themselves with significantly less money coming in.
Some workers may have found themselves ineligible for the scheme at all in cases where their jobs are seasonal, as they may not have had payslips by the beginning of March.
How have suppliers been affected?
While the struggles of the businesses we interact with on a day to day basis are front of mind, it can be easy for the suppliers of those businesses to slip through the gaps. For suppliers of the hospitality and catering industry, not only are they operating within a sector that will likely face one of the most difficult roads to normality, but the nature of their goods leaves them vulnerable as well.
They may find this period particularly difficult if:
- They are suppliers of a product that spoils
- They grow/raise their own produce, creating high running costs
- They cannot furlough workers as they are needed to tend produce
- Clients have not paid invoiced on time
Some suppliers have managed to overcome some of these challenges by finding new ways to sell produce, such as in boxes delivered directly to consumers. This allows them to move produce on before it spoils and keep some money coming into the business to cover running costs.
When it comes to late payments however, many suppliers will struggle to convince their clients to make payments on time when the clients are doing everything they can to protect their own cash flow.
What does the future look like?
At the core of a lot of the struggles these industries will face is the nature of their services and how soon they will be able to offer them safely.
While there has been talk of opening some hospitality business in July, there is no word yet on what venues these might include, although it is easy to imagine that cafes and restaurants with open outdoor space are likely to open first, as they will be able to implement social distancing more easily.
While the easing of restrictions may give some hope to those in the industry, many business owners will still be struggling to see how they will transform a highly interactive offering into one that falls within social distancing guidelines.
Not only will social distancing be posing a worrying problem for these businesses, but both businesses and suppliers will be questioning their ability to keep the business afloat with no way of making money. The longer restrictions are in place, the more businesses we are likely to see facing late payments and insolvency.
Already we are seeing some businesses facing challenges. The Restaurant Group, which owns well know chains such as Frankie and Benny’s and Chiquito, is closing between 100 and 120 sites permanently, with between 2,000 and 3,000 jobs at risk.
Adelie foods, one of Britain’s biggest food to go suppliers, has also hit difficult times. They supply ready made food to cafés and supermarkets, and after several weeks of rescue talks, they appointed administrators towards the end of May.
Other well established businesses are also worried about the road ahead. Well known pub chain Young’s have said that, while they expect to see the majority of their pubs open by 3rd August, they are not expecting to see their sales returned to a normal, pre-pandemic level until the 2022 financial year.
Although the future may seem bleak for some businesses in the industry, others have already begun reimagining their offerings to help them get back on track. From delivery and take-away services being offered by a number of restaurants, to hotels planning marketing campaigns aimed at attracting domestic travellers once they open, many businesses have demonstrated their resilience and ability to adapt in this difficult time.
Are you concerned about the future of your business? If you need help collecting overdue invoices, you can call us on 0800 9774848 or request a call back.
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