Yesterday, the Spirit Business and The Morning Advertiser reported on the gloomy stat that 4.3% of the UK’s licenced venues closed in 2022, with 1611 of them locking up for the final time in Q4.
With the onslaught of bad news in the past three years, it’s hardly surprising to see detrimental effects on the hospitality industry.
So, what are the main factors driving these closures right now?
Energy prices
As if you needed to hear it. With venues reporting 300% rises in the cost of energy bills*, it’s increasing the pressure on venues, and eating into profit margins.
Costs of ingredients
Food prices have shot up for consumers, and that’s been reflected across the board, with venues paying through the nose for ingredients, especially those sourced from outside the UK.
Cost of living crisis
All this is driving a cost of living crisis, resulting in a lack of consumer confidence. According to Graeme Smith, managing director of AlixPartners, speaking to the Spirits Business about the recent NielsonIQ report, “This is a trend that speaks to the relative decline of high-frequency drinking occasions, which have in part made way for the explosion in (less frequent, higher spend) dining-led visits, and the rise, in recent times, of (less frequent, higher spend) competitive socialising occasions.”
Rising living wage
In answer to rising costs across the board, the government has raised the minimum wage, and the real living wage has increased alongside it. While in theory a great thing, the added cost pressure on employers is forcing venue to reduce labour percentages, which in the end is bad news for employees.
Staff turnover and lack of talent
While the hospitality industry recruitment market looks to be regaining a bit of its former vigour, there’s an ongoing crisis across the board, as staff seek a higher standard of living, more sociable hours, and better benefits. Gen Z are coming into the job market and are making demands for better wellbeing at work - Perkbox recently reported that 75% of Gen Z actively seek jobs with wellbeing at the forefront of their employee benefits.
And what have the consequences been?
Pretty bleak. According the the NielsonIQ report, over 2022, almost 5,000 venues shut up shop. This spans bars, restaurants, nightclubs and other licensed venues.
Nightclubs and accommodation-led venues suffered the most if you split the closures by offering, having lost 14.8% and 7% of sites respectively, while drinks-led venues (pubs and bars), experienced the least closures, at 3.8%.
The worst news is that following three years of the C-word, independents were hit worst, with 13.3% of them closing in 2022, while managed sites fared significantly better, losing 3.6% of sites. Of the 5393 shuttered venues, 90% were independents**; with managed sites faring better with greater resource.
Any good news?
Yes. While consumer confidence is undoubtedly shaken, Q4 2022 did buck the trend, with “solid if unspectacular sales growth” across the sector. There’s very much still an appetite to eat and drink out amongst consumers. And while their good intentions won’t keep you from handing over the keys, they might not let you go down without a fight.
Anecdotally too, it’s positive to hear from multiple venues who have experienced best weeks and even months ever in Q1 of this year. The struggle really comes down to staff retention, spend per head, and profitability.
How can you weather it?
If you’re in a stable position right now, then hats off to you. If not - we feel you; times are tough and unpredictable. Check out our recent blog about quick wins to boost profitability here.
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