As footfall takes a dive, restaurants say energy bills will crush them

The hospitality industry is facing strong headwinds, as more than half of UK consumers have cut back on discretionary spending since the start of the year, with nearly two-thirds cutting back spending on dining out, according to new research from KPMG.

So far this year, 55 per cent of consumers have reduced their non-essential spending, the research showed - in particular on eating out, with 63 per cent citing less spending in this area. Soaring utility bills are the main culprit.

The survey comes as UK consumers face an onslaught of rising bills and tax hikes this month. The government's Energy Bills Support Scheme, which entailed a discount of £400 off energy bills over the winter - from 1 October 2022 to 21 March 2023 - has now come to an end, in effect leaving consumers £67 per month worse off.

Council tax bills have increased by £99 starting 1 April. The freezing of tax bands by Chancellor Jeremy Hunt - meaning the bands will not be revised in line with inflation as they normally are on an annual basis - also means a fiscal drag on consumers.

In a study by the CEBR economic consultancy for the Guardian, it emerged that bills are rising across the board, including for dental work, prescriptions, water, broadband and car tax.

In addition, supermarket price inflation in the UK hit another record high of 17.5 per cent at the end of March, ballooning the average household grocery bill by £837 to £5,617.

The resulting dip in spending on eating out is bad news for the hospitality sector, including pubs, restaurants and hotels which are already struggling to recover from the economic hit of covid.

In fact, hospitality businesses will be hit doubly hard as the arrival of April also means the end of the energy price cap set over the winter under Liz Truss for non-domestic consumers. The industry has been warning for a long time that the resulting increase will only exacerbate the spate of restaurant and pub closures seen during and after Covid.

The Energy Bill Relief Scheme capped the price of energy at roughly £18 billion for six months. Hunt, who described the scheme as "unsustainably expensive," has now launched its replacement, the Energy Bill Discount Scheme.

The new scheme will offer businesses reduced support in the form of £5.5 billion worth of energy discounts over the next year, rather than setting a cap on the price of energy. In effect, this means energy bills will more than double for small businesses like restaurants.

UKHospitality, a trade body, has reacted strongly on the eve of the introduction of the new reduced support scheme, saying that if Ofgem does not take action against "profiteering energy suppliers," thousands of venues will go out of business this year.

This comes on the heels of a snap survey of UKHospitality members, according to which almost half (41 per cent) said they had been refused a quote by an energy supplier for the sole reason of working in the hospitality industry.

UKHospitality says that the new scheme will leave the sector facing a collective annual hike of £7.3 billion in energy costs. In a sobering statistic, the organisation noted that energy costs now account for 11.4 per cent of business turnover across hospitality, up from 3.4 per cent pre-pandemic.

Reflecting earlier in the year on the reduction in support, Kate Nichols, CEO of UKHospitality said: "The Government's energy support scheme was a lifeline for many hospitality businesses – without it, bills would have gone up by more than 400 per cent to date."

She went on to emphasise: "Businesses will be forced to close their doors, jobs will be lost and communities deprived of the hubs that have become a lifeline.

"If we are to avoid that, the industry needs to see action now. Hospitality must be included in the Government's Energy and Trade Intensive Industries list and we need to see an increase in the business rates relief cap. Without such measures, April will indeed prove the cruellest month for hospitality."

There is little leeway for hospitality businesses to shield themselves. As anyone working in the industry knows, Gross Profit margins are tight, and head chefs have always been obsessive about keeping waste, particularly food waste, down.

However, talking to Forbes, the team at Seoul Bird, a Korean Street Food restaurant, reflected on their experience of surviving through the last few years.

The group has two sites in London as well as a site in Las Vegas. Commenting on UK-specific challenges, they said the Brexit-induced staff shortages in the UK, followed by the fallout of the pandemic, made things especially challenging.

Initially, they tried to bring in employees through a visa sponsorship scheme. However, they found that this was viable only for higher-level employees.

Judy Joo, co-founder and executive chef, shared their approach, saying: "We have also found that word of mouth is our strongest recruitment tool, and we have employed many friends and relatives of those already working for us."

To tackle the challenge of rising costs, Andrew Hale, Seoul Bird's COO, emphasised that they have created a solid network of suppliers and backup suppliers, allowing them to keep their prices competitive and COGS (Cost of Goods Sold) down.

On the point of reducing food waste as a means of cost control, James Webb, managing director at Electronic Temperature Instruments (ETI), a UK-based supplier of digital thermometers and probes to the catering industry, also had some insights.

Jason Webb commented: "With more people avoiding eating out, catering facilities may face challenges in managing their inventory and ensuring that they have enough food to meet demand. This puts food waste back into the spotlight. Well-managed refrigeration can help extend the shelf life of surplus food items, reducing waste and saving money."

He went on to note: "Organisations should be aware of the energy and cost savings they can create by managing kitchen facilities more efficiently during periods of reduced use. A typical commercial refrigerator uses 70 kWh per day, which amounts to 41 per cent of electricity consumption across all key appliances within a catering service. A significant amount, especially when you tally it up throughout the year.

As the hospitality industry battles amidst a tough economic environment, the recent consumer spending slowdown is just the latest salvo. Survival of small and medium businesses in the sector will depend, not only on far-sighted policies and planning implemented by business owners themselves, but also on any actions, or lack thereof, that the sector sees from the government - particularly on the energy front.