The hospitality sector stands as the UK’s third-largest employer, driving over 3 million jobs directly and an equivalent number indirectly. While often viewed interchangeably, hospitality and tourism are two distinct industries. Hospitality covers the provision of accommodation, food and drinks outside of the home, to both overseas visitors and domestic UK residents.
Hospitality plays a key role in shaping culture, supporting small businesses, and fostering urban development, serving as a barometer for the UK’s economic health. Nonetheless, recent months have posed challenges for the sector. Despite construction leading in insolvencies, hospitality saw a notable 37% increase last year. Let’s delve into recent insights from the past week to gain a real-time assessment of this industry’s current landscape.
Despite a surge in business due to pent-up demand, the hospitality industry’s recovery momentum may falter this year, particularly in the hotel market, amidst ongoing economic volatility and escalating costs. According to recent analysis by the Centre for Economics and Business Research (CEBR), hospitality and retail businesses are at high risk of insolvency in 2024, with many still grappling with financial wounds inflicted during the pandemic.
Corporate insolvency forecasts for 2024 have been revised upwards to 33,000, reflecting a faster-than-expected rise in insolvency levels in the last quarter of 2023. Despite recent improvements in the economic outlook, the impact on struggling companies is expected to lag by about 18 months, indicating ongoing challenges. Long-term risks include hotel supply issues and those related to climate change.
Consumer sentiment, influenced by financial well-being amid the persistent cost of living crisis, remains a critical factor. Leisure travel demand across Europe and the UK has shown signs of decline, further impacting the industry. Managing inflationary pressures is paramount, with a focus on performance enhancement and cash flow management.
Addressing labour shortages and adapting to evolving consumer needs are top priorities, although forthcoming immigration rules proposed by the government may add to labour challenges rather than eradicate them. Hotel operators must adopt proactive approaches to cost management and revenue generation to remain resilient in the face of evolving market dynamics and avoid the risk of insolvency.
What does this mean for distressed business buyers?
Vestd reported that over 10% of businesses in the hospitality, restaurants, and bars sector are currently on the market for sale. Selling a business is typically a lengthy and intricate procedure, especially under current circumstances. Nonetheless, all indications suggest that the current market favours buyers.
The forecasted slowdown in the UK’s hospitality sector, coupled with rising insolvencies unveils a prime opportunity for distressed business buyers. With assets potentially available below market value and a strategic timing advantage amidst economic uncertainty, buyers can seize the moment to acquire struggling businesses and assets. This presents a unique chance to build portfolios, capitalise on turnaround potential, and unlock long-term value in a challenging market landscape.
With changing consumer preferences driving market shifts, business buyers must remain agile and responsive to these evolving demands. This includes adapting product offerings and service delivery methods to align with their expectations. Furthermore, leveraging technology to enhance these experiences and streamlining operations will be crucial for staying competitive in the digital age. Additionally, business buyers who prioritise sustainability initiatives in line with changing ESG regulations will have the upper hand to unlock long term successful acquisitions.
Anticipated Regulatory Changes for Scottish Hospitality Businesses
New regulations affecting venue safety, alcohol sales, worker pay, and broader environmental and property matters are on the horizon for Scotland’s hospitality industry. The Scottish Government is poised to decide on raising the Minimum Unit Pricing (MUP) of alcohol to 65p, with provisions set to expire on April 30. Stakeholder engagement on alcohol marketing is anticipated following opposition to proposed advertising bans.
Staff retention remains a challenge, compounded by upcoming minimum wage increases. Divergence in business rates across the UK impacts Scottish businesses, while Low Emissions Zones (LEZ) pose footfall challenges. Legal battles over Short Term Let (STL) policies highlight regulatory complexities, with implications for hospitality businesses.
When it comes to acquiring distressed hospitality businesses in Scotland, legal challenges and uncertainties surrounding Short Term Let (STL) policies underscore the importance of thorough due diligence. Understanding the implications of business rate disparities and environmental regulations will be crucial for navigating market conditions and identifying viable investment opportunities.
Flat Cap Hotels Enters Administration
Administrators have been put in charge of two Flat Cap Hotels properties that have gone into administration for £7M amount. Christie & Co is marketing the Bridge in Prestbury for offers over £4.5m and the Vicarage in Cranage for offers over £2.5m.
Founded by Acorn Award winners Oliver and Dominic Heywood in 2015, Flat Cap Hotels operated food-focused destinations in heritage settings. Despite the Bridge in Prestbury winning the 2021 Hotel Catey award for Hotel Restaurant Team of the Year, the boutique brand went into administration on January 18 due to pandemic challenges, inflation, and economic difficulties.
The Courthouse in Knutsford, the third hotel, has been closed.The Vicarage in Cranage offers 23 bedrooms, a restaurant, bar, and surround sound sports bar. The Bridge in Prestbury features 27 bedrooms, a riverside location on the River Bollin and a popular outdoor bar for weddings.
Tom O’Malley, associate director – hotel broker at Christie & Co, expects broad interest from investors and operators, nationally and independently, as the properties are available together or separately.
Rigatoni’s Closes Manchester Restaurant After Recent Relaunch
Less than a month post rebranding, a well-known pasta eatery in Greater Manchester has regretfully declared the immediate closure of one of its outlets. Renamed Rigatoni’s, formerly Sud, the business, which debuted its fresh look on January 10, simplified its menu to offer homemade rigatoni paired with various sauces, starting at £7.50. However, starting today, Sale patrons will no longer have access to this esteemed restaurant, citing “financial challenges” specific to the area’s hospitality scene as the reason.
The brand’s three other locations in Altrincham, Ancoats, and Exhibition in the city centre will continue operations. Previously known as Sugo Pasta before rebranding due to legal issues, the restaurant aimed to make quality pasta accessible to all, with prices under £10. Despite this setback, the team expressed gratitude for the community’s support and acknowledged the dedication of their staff, urging continued support for local businesses while bidding farewell to Sale.
The closure is a clear example of the industry-wide struggle faced by hospitality businesses amidst economic uncertainty and post pandemic pressures. Nonetheless, within this adversity, distressed business buyers can identify opportunities to purchase struggling ventures at reduced prices. Time is of the essence. Act swiftly to make informed decisions and unlock future profitability.