Saturday 4 July, although important in the USA since 1776, has not been celebrated in the UK until this year. It quickly became a long-awaited day following the Government’s announcement that this would be the target date for the hospitality industry to once again welcome customers through their doors.
Whilst, at the start of lockdown this target seemed a long way off, it will not have gone unnoticed that following its arrival, several bars and restaurants have chosen to stay closed.
Many establishments have announced they are waiting a little longer to open given the risk of further changes to restrictions, whilst others consider it not commercially viable to reopen at a reduced capacity.
For all businesses, their breakeven point is a key consideration for their commercial viability. This is even more critical for businesses, such as those in the hospitality industry, that already operate at a low margin.
Businesses across all industries are facing challenges, and there are steps that can be taken to ensure that your business both remains viable through this period and then, in the future, is operationally more efficient and financially stronger.
David Ramsey, experienced owner of Grosvenor Pubs and a number of hotels in a variety of locations, explained that businesses in the hospitality industry will need to take a number of factors into consideration in the reopening of their establishments.
Location and customer base
- Hotels and bars in busy inner cities rely on tourists, after work drinks and passing trade – they all seem a distant memory now! Country pubs, however, will have been in much higher demand, with plenty wanting to get back down to their ‘local’ for their first draught pint since lockdown!
Government measures
- Following the reopening announcement, the two-metres social distancing guideline was reduced to ‘one-metre plus’. At two metres, some bars and restaurants were only looking at 25% capacity, whereas, one metre plus has increased this to around the 70% mark. Understandably, at 25% capacity, breakeven would have been impossible for many.
Capacity and margin
- How long can you afford for customers to occupy a table after they have finished their meal? This is a fine balance between delivering top quality customer service and needing to limit the service time to allow another full cover on to that table, contributing to that breakeven position.
Adding to the breakeven financial considerations, many pubs and restaurants have chosen to invest in and modify their buildings and in technology such as online menu systems and contact tracing apps.
Despite careful consideration and calculations on the number of bookings and covers required to reopen restaurants, those customers failing to honour their bookings render the targets unfeasible. Coupled with reduced footfall, this leaves restaurants unable to make up the missed bookings, and many have now implemented deposit systems in order to secure the booking and protect their income.
The ‘Eat out to help out’ scheme was announced in the Summer Statement, with the aim of stimulating people’s appetite for eating out. Businesses should take into consideration that, whilst the customer receives their 50% discount of food (up to £10) there and then, the business still bears the full cost of the food upfront before submitting a claim to HMRC, putting an immediate strain on cash flow, not just the bottom line.
The hospitality industry has been at the forefront of innovation during lockdown, finding ways to survive within government guidelines, such as takeaway food and even takeaway draught pints! Whilst many businesses implemented these changes to survive during lockdown, they are being continued by many whilst capacity and footfall are reduced and may remain into the future.
David Ramsey concluded that he firmly believes pubs and restaurants should be united in reopening to collectively do their part in encouraging the public back out and socialising and supporting the economy, albeit safely, once more.
The challenges the hospitality industry face will require a full audit of operations, supply chains and customer base in order to make reasonable adaptions to the business to make it viable. It is evident that cashflow will be key to many businesses going forward; to plan short and long-term cash flow for your business, download our templates here.
If you would like to discuss your hospitality business operations, margins and cash flow, please contact food and drink specialist Rebecca Copping at rebecca.copping@hazlewoods.co.uk or 01242 680000.
Further insights and advice to support businesses in building a #BusinessForTomorrow can be found on Hazlewoods dedicated resources webpage which is updated daily here.