The hospitality industry is always evolving to meet changing consumer needs, driven by factors like generational shifts, technological advancements, and increasing ESG compliance standards. With a growing demand for personalised experiences and the blending of business and leisure, this dynamic sector plays a crucial role in shaping culture, supporting small businesses, and driving urban development in the UK.

However, recent months have presented challenges for the hospitality sector. Over 2,000 insolvencies have been recorded in the country last month, with a significant portion occurring within this industry. While this may appear concerning, savvy investors see it as an opportunity to revitalise struggling businesses. Here are some of the latest insights on insolvency within the hospitality sector, offering opportunities for distressed business owners to capitalise on.

New Brexit Import Rules To Escalate Hospitality Challenges

The hospitality industry faces a critical juncture as the UK’s new border rules threaten to disrupt food imports from the EU, impacting pubs, restaurants, and their surrounding communities. In an already ongoing cost of living crisis, upcoming border checks on fresh produce from the EU will limit choices and raise prices for consumers. 

Specialist retailers heavily rely on temperature-sensitive EU produce, and any delays in imports will disrupt normal operations and increase costs. These challenges compound the existing economic difficulties faced by hospitality businesses, retailers, and delis. 

The proposed Border Target Operating Model (BTOM), slated for implementation from late April, poses grave challenges for the UK food supply chain. Stringent checks on EU imports, including meat, vegetables, and fruit, will delay access to fresh produce, leading to spoilage, damage, and ultimately higher prices. 

Current Brexit import rules already hinder the supply of quality produce, with many suppliers struggling to import artisanal meats and cheeses. The added administrative burden on EU farmers and producers will further exacerbate the situation, making it harder for them to comply with the new regulations.

Insider tip: This environment of uncertainty and financial strain may lead to more distressed businesses seeking buyers or investors to help them weather the storm. By providing financial support, strategic guidance, and operational expertise, business experts can streamline the supply chain better and enable struggling suppliers to emerge stronger. 

Pub Closures Across Britain Skyrocket

New research has uncovered a surge in pub closures, reaching the highest level in over a decade. In 2023, 769 pub businesses entered insolvency, marking a substantial increase from 518 in 2022. On average, 2.1 pub businesses closed per day in 2023, up from 1.4 per day in the previous year, with many of these businesses consisting of multiple pubs.

Additional pub closures likely occurred among groups owning multiple pubs that did not undergo insolvency proceedings. The total number of pubs in the UK decreased to 38,175 by the end of 2023, down from 41,015 a decade earlier.

The hospitality sector faces a challenging landscape, with rising energy, labour, and wholesale food and drink costs, coupled with squeezed disposable incomes of pub-goers. Furthermore, the government’s energy support package for businesses began tapering in Q1 2023, leading to a sharp rise in energy costs for publicans from Q2 onwards. Other contributing factors include the repayment of Covid support loans and railway strike action affecting trade in city centre locations.

While many large pub chains and independent pubs face closure, the success of new pub models, such as those owned by craft breweries and theme pubs like the Boom Battle Bar chain, are reshaping the industry. Understanding changing consumer expectations will be key in driving success within this space in the coming year. 

Insider tip: Typically, after a pub closure, various assets may become available for acquisition or repurposing. These include: 

• Real Estate: The pub property itself, including the building, land, and any associated facilities, can be a valuable asset. Business owners may consider repurposing the property for alternative commercial uses. 
• Fixtures and Equipment: Furniture, fixtures, and equipment within the pub, which can be sold, repurposed, or used to furnish other establishments. 
• Liquor Licence: Depending on local regulations, the pub’s liquor licence may be transferable or sellable separately from the property. Acquiring a liquor licence can be advantageous for those looking to establish their presence in the industry. 
• Branding and Intellectual Property: If the pub had a well-established brand, logo, or trademark associated with it, these intellectual property assets could be valuable for rebranding or marketing purposes. 
• Leasehold Interests: If the pub operated under a lease agreement rather than owning the property outright, the leasehold interest may be available for assignment or subletting. Investors can explore opportunities to take over existing leases and continue operating the premises under new management.

A thorough due diligence of the above can help proactive business owners identify opportunities amid the turmoil and position themselves for long-term success.

Virgin Hotels Glasgow Up for Sale

Virgin Hotels Glasgow, which closed abruptly in December less than a year after its debut, is now up for sale through Savills. The 165-bedroom hotel, located on Clyde Street, ceased operations after the building’s owner went into administration. Savills Scotland’s Steven Fyfe sees this as a rare opportunity to acquire a prime asset already fitted to luxury standards, with potential for immediate income. The hotel’s prime location in Glasgow city center is a major selling point, drawing interest from a global pool of buyers.

While Virgin Hotels expressed confidence in the site’s future reopening, Unite Hospitality condemned the sudden closure’s impact on workers. Staff were informed abruptly before Christmas, with uncertainty over wages and severance. The hotel’s closure stemmed from financial issues of Lloyd’s Development Limited, the building owner, which went into administration in November. Despite Virgin Group’s attempt to purchase the property to save the hotel, the offer was rejected.

Virgin Hotels had high hopes for its Scottish ventures, with Edinburgh’s opening preceding Glasgow’s. Bryan Davern, former vice president of operations, Europe, highlighted the importance of Scotland for the brand’s European debut, emphasising the vibrant local scene and visitor appeal over London’s potential dilution of its unique offerings.

Insider Tip: The potential reopening of the hotel under new ownership suggests the possibility of generating income from day one. This situation underscores the importance of staying informed about market developments and being ready to act swiftly to seize investment opportunities in the hospitality sector.

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