Sep 21 2020
The rapid spread of COVID-19 (coronavirus) across the United Kingdom from February 2020 onwards has had a catastrophic effect on restaurants. Consumers started being reluctant to visit restaurants over the two months prior to the government-imposed closure of hospitality operators on 20 March 2020 with UK hospitality sales contracting by 21.3% during the first quarter of 2020, according to CGA's UK Hospitality Quarterly Tracker. The closure of all hospitality establishments on 20 March until 4 July 2020, when most hospitality businesses such as restaurants, pubs and bars were allowed to reopen, eliminated demand for sit-in services, and CGA's Q2 UK Hospitality Quarterly Tracker indicates that UK hospitality sales fell by a further 87% during the three months through June 2020. Although some operators offered food for delivery and takeaway during the closure period, this generated nowhere near the same amount of revenue as sit-in services. According to the Coronavirus and the impact on output in the UK economy survey by the Office for National Statistics (ONS), the index of restaurants bottomed out from 128.3 in February 2020 to 12.1 in April 2020, indicating the devastating effect of the lockdown on the Full-Service Restaurants industry’s output.
Over 22,000 restaurant workers lost their jobs as a result of the pandemic and restaurateurs are facing mounting rental costs while being unable to operate at full capacity due to social distancing restrictions. Despite a spike in bookings following the government announcing the reopening of restaurants, it became evident that the reopening itself was not enough for industry demand to recover. The UK government introduced the Eat Out to Help Out (EOHO) Scheme to be used by restaurant owners to offer a discount to diners and encourage them to eat at their restaurant. From Monday to Wednesday, the scheme allowed for a government-funded discount of up to £10 per person on food and non-alcoholic beverages. It was implemented throughout August 2020 in a bid to boost the recovery of restaurants following the easing of restrictions. According to data sourced from OpenTable, the EOHO scheme had a tremendously positive effect on the industry with seated diners from online, phone, and walk-in reservations spiking every week in August from Monday to Wednesday. According to the same source, restaurant reservations rose by 53% compared with the Monday-to-Wednesday period in August 2019. According to the BBC, 84,700 restaurants participated and over 100 million meals were claimed under the scheme. Prior to the implementation of the EOHO scheme, bookings were down significantly compared with the previous year, and restaurants were heavily dependent on walk-in appointments and deliveries.
According to HM Treasury, a total of 130,000 claims were made by businesses under the EOHO scheme at a cost of £522 million, more than the original £500 million set aside by Chancellor Rishi Sunak to fund it. However, the scheme has been of tremendous help to the industry’s recovery, directly contributing £250 million in additional revenue for the government, as well as boosting consumer confidence. According to Harpers, a wine and spirit trade news outlet, the scheme enabled 200,000 staff in the pub and hospitality sector to come out of furlough early to cope with increased demand, saving the government almost £150 million in furlough costs. Moreover, £30 million was generated in VAT on food and soft drink sales as a result of the scheme. Additionally, according to the ONS, the UK inflation fell to its lowest rate in five years in August 2020, at just 0.3%, owing to the EOHO scheme driving down prices. The ONS also reporting that prices in restaurants were down 2.6% in August 2020 compared with the same month in the previous year, marking the first decline since records began in 1989. However, to ensure the recovery of the sector for the rest of the year, demand needs to keep growing from September onwards. For this to happen, industry trade bodies have requested for an extension of the initial reduction of VAT to 5% from 20% past the current deadline of 12 January 2021, as well as reforming business rates and cutting beer duty ahead of the next Budget.
However, the aftermath EOHO scheme is expected to negatively affect the recovery of some small operators by encouraging a return to discounting, with many restaurants having chosen to mirror the offer at their own cost throughout September. Although this might benefit those that can afford it, many small operators that are already struggling financially are expected to find themselves forced to discount their prices to stay in business. Therefore, although demand spiked in August, the industry’s future is uncertain following the discontinuation of the scheme.
According to a survey of 300 UK food-service operators conducted by Opinium, a London-based market research and insight consultancy, in April 2020, the top two concerns of restaurateurs were customers avoiding restaurants in fear of contracting the virus, accounting for 46% of respondents, and customers having less disposable income for dining out, accounting for 44% of respondents. Further, according to Big Hospitality, more than a third of customers are expected to dine out less often in September now that the EOHO scheme has ended. This, combined with the inability of restaurants to operate at full capacity due to social distancing restrictions, is expected to significantly slow the industry’s recovery. The ban on social gatherings above six people from 14 September 2020 is expected to exacerbate this trend in the short term.
Despite having been somewhat overlooked during the pandemic, the end of the UK’s transition period for leaving the European Union on 31 December 2020 is expected to exacerbate the industry’s already fragile financial situation. The implementation of the UK’s points-based immigration system, which will restrict the entry of EU labour into the and includes a minimum salary threshold of £25,600, is expected to result in a mounting shortage of restaurant workers, potentially forcing industry operators to raise salaries to find EU staff. This is expected to further weigh on the already slim margins of industry operators while forcing even more restaurants out of business.
To sum up, the pandemic has had a catastrophic effect on the Full-Service Restaurants industry and the hospitality sector as a whole. The implementation of the EOHO scheme played a crucial role in the industry’s recovery in August by incentivising consumers to spend money on eating out in the beginning of the week. However, the stimulus offered by the scheme is expected to be short-lived, with industry (revenue expected to decline by 29.1% to £16.2 billion in 2020-21. Until an effective vaccine become widely available across the country, demand is unlikely to return to pre-coronavirus levels, with the points-based immigration system anticipated to further exacerbate the problems of restaurateurs, forcing many more to exit the industry.