​Hospitality Insolvencies Rise 20% in a Year

Insolvencies within the hospitality sector have risen significantly over the past year, according to the latest government statistics. The data, released on 19 July, shows a 20% increase in insolvencies in accommodation and food service activities in the 12 months to May 2024, marking the highest year-on-year increase of any sector. The number of insolvencies in this sector climbed from 3,133 in the previous year to 3,752.

This increase places the hospitality sector among the top three industries with the highest number of business insolvencies, following construction, wholesale, and retail trade. Saxon Moseley, head of leisure and hospitality at RSM UK, highlights the challenges faced by the industry, citing increasing wage costs, persistent food inflation, and high interest rates as key factors contributing to the sector's struggles. Additionally, unseasonably cold and wet weather has adversely affected trading in the first half of 2024.

Further compounding the sector's woes, new research from Begbies Traynor reveals that more than 1,500 restaurants and bars are in 'critical financial distress.' The latest Red Flag Alert report places restaurants and bars among the top ten sectors experiencing the highest financial distress. This follows the earlier government report noting a 20% rise in insolvencies in the accommodation and food service sector.

In Q2 2024, the number of restaurants and bars in critical financial distress rose by 7.3% from the previous quarter, with 1,587 establishments affected. Additionally, significant financial distress in this segment increased by 12.2% between Q1 and Q2 of this year. The travel, tourism, and hotel accommodation sectors also saw substantial rises in significant financial distress, reflecting ongoing consumer confidence issues in the UK.

Julie Palmer, a partner at Begbies Traynor, points out that 2024 has been challenging for UK businesses, particularly those in consumer-facing sectors such as hospitality. She notes that while inflation has eased slightly, consumer behaviour has not returned to pre-pandemic levels, leaving businesses grappling with higher costs, including increased wages. The adverse weather conditions have further exacerbated these difficulties.

The broader economic landscape remains challenging for many UK businesses. The number of companies in significant financial distress rose 8.5% to 601,950 in Q2 2024, a substantial increase from 439,815 in Q2 2023. Additionally, 40,613 UK businesses are in critical financial distress, up 1.1% from the previous quarter and 34.5% from last year.

Ric Traynor, executive chairman of Begbies Traynor, underscores the severity of the situation, noting the substantial increase in businesses facing financial difficulties compared to last year. Despite some optimism in certain economic sectors, many companies struggle to survive.

The recent King's Speech has provided hope for the hospitality industry, with proposed apprenticeship reforms, streamlined planning for new developments, and improved safety laws for late-night venues. However, potential changes to zero-hour contracts, employee rights, and further minimum wage increases could place additional pressure on already thin margins.

With no current mention of business rate reform or VAT reductions for the industry, many are looking to the upcoming Autumn Budget for support in curbing the rising insolvency rates. Traynor emphasises the need for swift government action to prevent more businesses from succumbing to the economic pressures they face.