Hospitality costs reach 12-year high

Government-implemented costs are taking a significant toll on businesses in the eating and drinking-out sector, new data by UKHospitality and business property adviser Christie & Co suggests.

According to the 2018 UKHospitality Christie & Co Benchmarking Report, controllable costs have risen to an average of 52.5% of turnover, the highest in the 12-year history of the report.

Payroll costs, the single largest cost for eating and drinking-out businesses, now stand at 29.4% of turnover, an increase of 1.5 percentage points in 12 months.

The report also showed a real term shrinking of like-for-like sales that have risen 1.1%, below inflation. Margins for food sales remain flat while margins for drinks sales have declined since last year.

The report also assessed business confidence ahead of Brexit, with 40% of businesses believing that Brexit will have a negative impact on business. Respondents have stated that recruitment has already become more difficult, with one in five employers reporting that EU nationals have already left the businesses as a direct result of Brexit.

UKHospitality CEO Kate Nicholls said: “The results of this year’s UKHospitality Christie & Co Benchmarking Report make for sobering reading for eating and drinking-out businesses. Costs continue to rise for pubs, bars, restaurants and nightclubs.

“At a time of political and economic uncertainty, the government must provide support to help address spiralling costs that threaten the future of the hospitality industry in the UK. Additionally, 40% cent of businesses surveyed reported a hike in their business rates and 20% have reported that they have had to cut staff numbers to address cost rises. The government must immediately commit to reform of a broken business rates system.”

Ramzi Qattan, director at Christie & Co and report author, added: “This year’s results reflect the continuing evolution of both the UK consumer and investor landscapes. Food sales have reached a new highwater mark, and room revenues continue to grow at a strong pace as more operators are attracted to high margin letting rooms.

“From an investor perspective, we are well past the peak of the investment cycle, with capital expenditure now more subdued. Structural issues such as oversupply of restaurant space on the back of Private-Equity-funded brand rollouts have created further challenges, although thankfully rent levels on the high street are now also well past their peak.”