UK catering industry hit by cost of living and impact of coronavirus

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Stuart Devine believes his fish and chip restaurant chain in Aberdeen has weathered the worst when the UK government permanently lifts the Covid-19 lockdown in spring 2021 period, customers are returning for classic British meals.

But before Asheville could fully recover, it suffered another blow when Russia launched a full-scale invasion of Ukraine in February 2022, disrupting global supply chains and sending energy and food prices soaring.

“Things are really tough – you go to work every day basically to survive, to keep people in jobs,” said Devine, whose weekly oil and wheat bills have increased by around £1,000 since the invasion. Nearly 40 years later, he added, “Business has never been tougher.”

Around 40% of UK restaurateurs are also facing Devine's dilemma, with their operations at or below break-even point after the industry was hit by a perfect storm of pandemic closures and a cost-of-living crisis, according to UKHospitality.

The trade body estimates that up to 30% of businesses in the sector have closed since the outbreak of the coronavirus. Some 1,169 restaurants closed last year alone, equivalent to more than three restaurants a day, according to data from UKHospitality and consultancy CGA by NIQ.

Kate Nicholls, chief executive of UKHospitality, said: “Funding from the front door is not enough to offset the huge operating costs restaurants face.”

Although energy prices have fallen from their peaks over the past 12 months, restaurants are still bearing the brunt of rising food costs. Labour-intensive industries in particular are also facing staff shortages exacerbated by Brexit and trying to keep up with the legal minimum wage. It currently costs £10.42 an hour, rising to £11.44 in April.

“The hardest thing is, the only thing you can do is raise prices,” Devine said, noting that raising prices would only be of limited help when consumer confidence is already weak and household budgets are tight.

However, analysts note that the pressure is not being felt equally across the industry, with budget and high-end dining options likely to remain attractive despite weak customer demand.

Losing privately run family businesses will have lasting impact on UK hospitality industry

“In these cases, the mid-market always suffers,” said Paul Newman, head of leisure and hospitality at UK audit firm RSM. “High-end restaurants that are experience-driven are doing well.”

One example is Hawksmoor, a group of high-end steakhouses located primarily in London. Its turnover grew by 20% in 2023 to a record £90m as the company benefited from steady demand from a customer base better able to withstand rising costs of living.

“There are a lot of things we can do to try to improve our profits without having to constantly pass them on to customers,” said CEO Will Beckett. “Horskmore has highly skilled people whose work It’s those areas that work, but I can’t tell you how much time some small independent businesses have to spend trying to figure out energy costs.”

“I'm very optimistic about this year,” he added. “But I often think that when you’re in central London and everything looks great, it’s easy to become blind to the rest of the UK”.

A major concern for the industry is that in the long term these trends will deepen the divide between the already vibrant hospitality hubs in parts of the capital and the smaller high streets outside London.

Belfast chef Michael Deane has lost four of his seven restaurants since the start of the coronavirus pandemic. In January, price pressure forced him to close Deanes Eipic, which opened in 1997 and held a Michelin star for much of his tenure.

“It's definitely a tough job for us to keep the ball anywhere near the green,” Dean said.

Dean and Devine are among a growing number of restaurateurs calling on the government to level the playing field by cutting VAT. When the pandemic hit, the tax was lowered to 5% to help businesses, but has since been restored to 20%.

Jeremy Hunt announced in Wednesday's Budget that the VAT registration threshold will increase from £85,000 to £90,000 from 1 April.

“The loss of a private family business will have a lasting impact on the UK hospitality industry forever,” Devine said, adding that he was “extremely disappointed” with the chancellor's decision. “We're in the trenches and that's not the way to run a business.”