Smaller businesses hit hardest as one in 18 sites close in past year

The hospitality sector has lost one in 18 sites in past 12 months as the economic crisis continues to bite with more than 1,100 outlets gone in the three-month period between April and June this year.

The total of 5,736 pubs, bars, nightclubs and other on-trade businesses means about 5% of UK hospitality sites are closing annually and, since March 2020, close to 15,000 venues with on-premise licences have shut, according to the Hospitality Market Monitor​ from CGA by NIQ and AlixPartners.

In the latest quarterly analysis, Britain’s number of licensed premises dipped by 1.1% (in the three months from April 2023 to June 2023). The drop represents 1,139 net closures in the second quarter – equivalent to 12.5 per day.

The research authors said this follows “relentlessly high costs for businesses and consumers alike, which have sent many venues that were already weakened by Covid-19 to the wall”.

Smaller businesses have suffered most as the independent segment has shed 7% of outlets in the past 12 months, in contrast to fractional growth of 0.1% in the managed hospitality sector.

Cautious optimism​

However, the monitor also revealed signs for cautious optimism. Net closures across the first half of 2023 (1,895) were less than half the number seen in the second half of 2022 (3,841) and some units vacated recently have been repurposed by other operators including emerging groups.

The casual dining segment is now 5.6% smaller than 12 months ago, but food-led pubs (down 2.9%), high street pubs (down 3.1%) and community pubs (down 4.1%) have all recorded notably fewer closures than the sector as a whole.

UKH chief executive Kate Nicholls said: “These figures clearly demonstrate the challenges faced by hospitality businesses. In particular, smaller independent businesses, which have borne the brunt of the ongoing challenges of soaring costs, workforce issues and more.

“Alongside the increased rate of business failure across the independent market, there has been an industry-wide freeze on investment and new openings due to the current crisis, providing a very constrained short-term outlook.

“We can draw hope from this, though, as when these challenges do begin to subside, the longer-term prospects will become increasingly more positive, as demand continues to remain stable which will lead to increased growth prospects.

“It’s vital the sector, especially including our smaller and independent venues, receives as much support as it can get, if it’s going to bounce back and experience that positivity, and play a key part in driving the recovery.”

City centres faring better​

The monitor also found Britain’s city centres are showing growing resilience, with a 4.2% net fall in licensed premises in the 12 months to June 2023 – a better figure than the drops of 5.9% and 5.4% in large and small towns respectively.

CGA by NIQ business unit director – hospitality operators and food, EMEA, Karl Chessell, said: “Managed groups have been impressively resilient in many segments and areas, and there are welcome signs city centres in particular are back to their pre-Covid vibrancy. More venue closures are sadly inevitable while costs remain so high, but the outlook for well-resourced, distinctive and customer-focused groups remains good.”

AlixPartners managing director Graeme Smith added: “Despite the current cost-of-doing-business crisis, which has served to squeeze profitability, suppress investment and, in the worst scenarios, challenge viability, a number of segments of hospitality and leisure are holding up extremely well. And this, in a market that was already challenged and in recovery mode after the events of the past three years.

“While every business lost is a tragedy, many more are managing to navigate their way through. We are all waiting for this margin-compression cycle to turn, and when that switch comes, the market will, from an investment and lending perspective, right itself quickly.

“Investors will return, with businesses that have delivered stability and are able to demonstrate growth, top of the agenda.”