The hospitality sector has faced numerous challenges as a result of COVID-19 (coronavirus) pandemic. Government-imposed lockdown restrictions have resulted in hospitality being one of the worst performing sectors of the UK economy during the past year.
According to CGA’s Q4 UK Hospitality Quarterly Tracker, the hospitality sector suffered a 54% drop in sales in 2020, making the sector responsible for one-third of the UK economy's annual £215 billion contraction.
Despite the provision of cost-relief schemes by the UK government, such as the Coronavirus Job Retention Scheme (CJRS) and the Coronavirus Business Interruption Loan Scheme, hospitality operators have faced unsustainably high operational expenses while being unable to generate much revenue, permanently driving many out of the sector.
Gradual reopening
Hospitality businesses in England were allowed to reopen outdoor spaces such as beers gardens and alfresco pavement seating to serve customers in groups of up to six people or two households from 12 April onwards. This first phase of the sector’s gradual reopening is expected to mark the first step towards the sector’s road to recovery.
With just under a quarter of England’s licensed premises, a total of 20,832 venues, having re-opened for outdoor-only service by 15 April according to figures from CGA and AlixPartners’ Market Recovery Monitor, the hospitality sector still has a long way to go.
Assuming that the next phase of the UK government’s roadmap remains on track, the reopening of indoor hospitality on 17 May is expected to significantly boost the sector’s recovery.
Although there is still a long way until the sector fully recovers, the reopening of outdoor hospitality spaces on 12 April caused Britons to rush to tables despite low temperature on the day, with hospitality operators recording a 58.6% increase in overall sales compared with the same day in 2019.
Restaurants with outdoor space that have opened for reservations are expected to have been operating at full capacity with bookings made weeks in advance, but less than one-third of restaurants have reopened for online reservations, according to the latest data provided by Open Table. As a result, although there was a spike in the number of seated diners from online, phone and walk-in reservations for all UK restaurants from 12 April, these still remain between 20% and 50% below 2019 levels.
A bumpy road
With more than 5,000 licensed premises having permanently closed during the coronavirus pandemic, according to the Market Recovery Monitor compiled by CGA and Alix Partners, recovery to pre-pandemic levels is not expected to become evident anytime soon. Nevertheless, the Pubs and Bars and Full-Service Restaurants industries are both expected to grow over the five years through 2025-26.
The hospitality sector’s recovery is expected to be immensely important to national economic recovery. According to the latest data from the Office for National Statistics, the total number of paid UK employees was almost 813,000 lower in March 2021 than during March 2020, with hospitality businesses accounting for 43% of the national total, indicating the sector’s importance to the economy.
However, even following the reopening of indoor spaces on 17 May 2021, hospitality operators, particularly pubs and bars, are still expected to operate at significantly reduced capacity due to prevailing social distancing restrictions.
Following the easing of the first lockdown restrictions on 4 July 2020, when both indoor and outdoor pubs were allowed to reopen, the number of seated diners from online, phone and walk-in reservations for all UK restaurants remained between 40% and 70% below 2019 levels over the week through 11 July 2020.
These figures indicate that until the UK government delivers its commitment to drop social distancing restrictions, which will be on 21 June 2021 at the earliest, recovery is expected to be slow.
Staff struggles
Thousands of hospitality workers have returned to their home countries during the pandemic, leaving UK pub and restaurant owners struggling with staff shortages, with the Financial Times claiming in April 2021 that many furloughed hospitality employees did not want to return.
The introduction of the UK’s new points-based immigration system on 1 January 2021 is expected to compound these challenges, resulting in new hospitality workers from the European Union being unlikely to meet the entry requirements. Following the potential discontinuation of the CJRS on 30 September 2021, small pubs that have been swamped with debt during the pandemic are expected to face financial challenges, with many likely to exit the industry altogether.
Conclusion
Although the UK’s phased reopening of the hospitality sector is expected to mark the first step towards sectoral and economic recovery, the road is expected to be bumpy. With thousands of hospitality establishments permanently going out of business and EU hospitality workers returning to their home countries, the sector’s recovery is expected to be slow.
According to ONS data collected between 6 and 18 April 2021, 46.7% of businesses in the accommodation and food service activities industry have only three months' cash reserves or less. Therefore, the inability to operate indoors until 17 May and at full capacity until 21 June is likely to exacerbate this trend, driving many operators further into debt.
However, should the phased reopening go ahead as planned, the hospitality sector is anticipated to strongly recover, albeit remaining below pre-pandemic levels in the medium term.
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