After an unpredictable two years, many businesses in the sector are still experiencing very challenging trading conditions. While pubs, bars and restaurants hoped Christmas 2021 would see a return to a busy festive season, the arrival of the Omicron variant and associated restrictions resulted in significant cancellations and staff shortages, alongside continuing supply chain issues and inflationary pressures.

Where are we now?

Data from the ONS released on 27 January 2022 has highlighted the impact of these challenges. In particular, the data shows that in mid-January:

  • just 64% of businesses in the accommodation and food service activities industry reported they were fully trading, down from 76% in early December;
  • 26% of businesses in the sector reported their turnover had decreased in the previous two weeks compared with normal expectations for the time of year, with 67% reporting the pandemic as the main reason for this change;
  • 28% of businesses in the sector reported a shortage of workers; and
  • almost a third reported difficulty in procuring materials, goods or services from within the UK in the previous month.

Additional data on consumer spending has also highlighted the impact on the sector, with some reports suggesting spending at restaurants saw a decline of 14% compared to the same period in 2019.

Where are we headed?

Despite the continuing challenges, with the roll-out of boosters and the lifting of restrictions, the ONS data suggests a level of optimism regarding future trading conditions. Nearly three quarters of businesses in the sector reported a moderate or high level of confidence that their business will survive the next three months.

Nonetheless, many businesses will still face serious challenges in seeking to address the losses incurred during the pandemic. While the Scottish and UK governments have introduced a number of support measures aimed at addressing the significant economic impact, many restaurant and pub owners have argued that the packages are not enough.  

There is still immense pressure on businesses both to develop new strategies to deal with the ongoing impact of the virus and to protect income in this unprecedented landscape. Inflationary pressures, staff shortages and supply chain issues are only adding to the challenges faced.  

Directors must also be mindful of their duties and the potential for personal liability that can arise from failing to act in accordance with those obligations, as well as the particular risks that become relevant where a company is in financial distress, such as liability for wrongful trading.

Throughout the pandemic, the hospitality sector has demonstrated its ability to adapt and innovate. While there are undoubtedly still significant challenges ahead for many businesses, early engagement with experienced advisors can be very valuable in assessing restructuring options and, where appropriate, utilising the mechanisms available to rescue businesses.

HeraldScotland: Fiona McKerrell is a Partner in Shepherd and Wedderburn’s restructuring and business advisory team.Fiona McKerrell is a Partner in Shepherd and Wedderburn’s restructuring and business advisory team.

To find out more, please contact Fiona at fiona.mckerrell@shepwedd.com, or Suzanne Knowles, a Senior Associate in the team, at suzanne.knowles@shepwedd.com.