UK restaurant sector hit by cost of living and Covid legacy

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Stuart Devine thought his chain of fish and chip restaurants in Aberdeen had survived the worst when the UK government lifted Covid-19 lockdowns for good in spring 2021 and customers returned to enjoy the classic British meal.

But before the Ashvale could fully recover it was dealt another blow, when Russia’s full-scale invasion of Ukraine in February 2022 disrupted global supply chains and sent energy and food prices soaring.

“Things are really tough — you are basically coming to work every day to try and survive, to keep people’s jobs alive”, said Devine, whose weekly bill for oil and wheat has jumped by about £1,000 since the invasion. After almost 40 years, he added, “business has never been harder”.

Devine’s struggles are shared by roughly 40 per cent of UK restaurant owners, who are operating at or below break-even point, after the sector was hit by a perfect storm of pandemic shutdowns and the cost of living crisis, according to data from UKHospitality. 

The trade body estimates that up to 30 per cent of businesses in the sector have closed since Covid struck. About 1,169 restaurants shut in the past year alone, equivalent to more than three a day, according to UKHospitality and consultancy CGA by NIQ.

“The money coming from the front door is just not enough to offset the significant cost of doing business that the restaurants are facing,” said Kate Nicholls, chief executive of UKHospitality.

While energy prices have fallen from their peak over the past 12 months, restaurants continue to bear the brunt of elevated food costs. The particularly labour intensive industry has also struggled with staff shortages, worsened by Brexit, and to keep pace with the statutory minimum wage. It stands at £10.42 an hour and will rise to £11.44 in April. 

Devine said “the hardest thing is that the only thing you can do is put your prices up”, noting that there was a limit to how much lifting prices could help at a time of already weak consumer confidence and tight household budgets.

Analysts noted, however, that such pressures were not being felt equally across the sector as a whole, with both budget and high-end dining options likely to retain their appeal despite subdued customer demand.

Losing privately run family businesses is going to have lasting effects on the British hospitality industry

“It’s always the mid market that suffers in these situations,” said Paul Newman, head of leisure and hospitality at audit firm RSM UK. “Top-end, experience-led restaurants are doing well.”

One example is Hawksmoor, a group of high-end steakhouses mostly in London. Its turnover increased 20 per cent to a record £90mn in 2023, as the company benefited from stable demand from a customer base that could better withstand rising living costs.

“We have got quite a lot of things that we can do to try to work on margin without just constantly passing it on to customers”, said chief executive Will Beckett. “Hawskmoor has got skilled people whose job is just to work on those areas, but I can’t tell you how much time it takes for some smaller independent businesses to just try to sort out their energy costs.”

“I am really optimistic about this year,” he added. “But I often think it’s quite easy to be blind to other parts of the UK when you are in central London and everything looks great”. 

A key concern in the industry is that, in the long term, these trends will deepen the divide between already vibrant hospitality hubs in parts of the capital and smaller high streets outside London.

Belfast-based chef Michael Deane has lost four of his seven restaurants since the onset of Covid. In January, price pressures forced him to shut Deanes Eipic, which opened in 1997 and held a Michelin star for much of its tenure.

“It has been an absolute labour for us to keep the ball anywhere near the green,” said Deane. 

Deane and Devine are among a growing number of restaurant owners calling on the government to level the playing field by cutting VAT. The levy was lowered to 5 per cent when the pandemic hit to help businesses, but it has since returned to 20 per cent.

In his Budget on Wednesday, Jeremy Hunt announced the threshold for VAT registration would rise from £85,000 to £90,000 on April 1.

“Losing privately run family businesses is going to have lasting effects on the British hospitality industry forevermore,” said Devine, adding that he was “majorly disappointed” by the chancellor’s decision. “We’re in the trenches, and that’s not the way you run a business.”