Corporate insolvencies in the UK hospitality sector fell to a two-year low in October, providing a boost for an industry that has been among the worst affected by recent economic shocks. However, with many hospitality businesses in a difficult financial position and facing a raft of existing and new headwinds, insolvency levels are expected to increase over the coming months.
According to new analysis of government data by accounting and tax advisory firm RSM UK, 253 companies in the accommodation and foodservices sector fell into insolvency during October 2024. This was a 24 per cent year-on-year drop from 332 insolvencies in October 2023, as well as a slight month-on-month decrease from 261 in September 2024, and represented the lowest monthly figures for two years.
Saxon Moseley, partner and head of leisure at RSM UK, said that the figures were an “early Christmas present for operators”, with insolvencies in the sector continuing a downward trend that began in the summer.
Moseley continued: “With the festive trading period well underway, operators will be hoping to build up some reserves to help mitigate the impact of looming cost increases.”
Despite the positive figures, however, there are still major challenges facing operators across the hospitality industry. While conditions have improved during 2024, the sector has continued to be impacted by headwinds including high inflation and wage costs and fragile consumer confidence.
During the first half of 2024, these factors pushed hospitality insolvencies up slightly compared to the same period of 2023, while pub and bar insolvencies increased by close to a third in the year ending April 2024.
The summer brought some improvements, helped by events such as Taylor Swift’s Eras tour in the UK and the England men’s national football team’s run to the final of Euro 2024. As the latest figures show, insolvencies in the sector have slowed since then.
However, many hospitality businesses remain in an extremely perilous position, with one recent report, for example, finding that more than one in 10 UK restaurants – 6,128 restaurants - were at risk of imminent closure.
Furthermore, measures announced in the Autumn Budget have intensified fears for many hospitality owners, with the government unveiling increases in employers’ National Insurance contributions and the National Living Wage.
Saxon Moseley commented: “The industry is bracing for a wave of post-budget headwinds with employment costs increasing and additional compliance changes under the Employment Rights Bill."
“For vulnerable businesses already struggling to make ends meet, this could well be a step too far and we expect to see an uptick in insolvencies across the industry next year as a result.”
Discussing what this might mean for M&A activity in the hospitality sector, Moseley said that the “backdrop will create consolidation opportunities for operators looking to strengthen market position through strategic acquisitions and bring efficiencies to respond to the budget measures”. Moseley added that distressed deals would “drive a further wave of consolidation in 2025.”
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