The UKHospitality trade body has issued a warning that has reverberated throughout the industry, revealing that over three quarters of hospitality businesses in the UK are at risk of insolvency within the next 12 months. In conversation with the Leaders Council, Colin Thompson, owner and co-director of Scotland’s Dornoch Castle Hotel, discusses how his business has kept itself afloat through the lockdown period, while Steve Hill of independent frozen food storage facility Hemswell Coldstore in Lincolnshire, shares his experiences of how his hospitality sector clients have been affected.
UKHospitality’s warning came after a survey it conducted by in partnership with CGA suggested that one in every five hospitality businesses are at risk of insolvency or expect to become insolvent within a year.
Over half of the businesses surveyed believe there is a slight risk of insolvency, while less than a quarter believe they are not at risk.
UKHospitality chief executive Kate Nicholls warned that without further government support, more businesses are likely to face hardship, risking hundreds of thousands of jobs.
Nicholls said: “These new figures underline the scale of the impact of Covid-19 on our sector and paint a truly stark picture of its immediate future.
“Over three-quarters of businesses in a sector which, pre-Covid, employed more than three million people, have some risk of insolvency within a year. Worryingly, over 20 per cent are looking at a serious risk of insolvency or are now expecting it to happen. This is a truly desperate position to be in.
“The future of this sector, which provides jobs in every region of the country and is central to our social lives, has never looked shakier.”
Speaking on the Leaders Council podcast back in June, Colin Thompson expressed views which very much mirrored Nicholls’ vision of an uncertain future for the sector, revealing that the pandemic had left Dornoch Castle Hotel rapidly facing a shortage of funds despite knowing as early as February that a UK lockdown could be looming.
Thompson said: “We were aware of Covid early on. My sons own Dornoch Distillery which grew out of the hotel business and operates out of the Dornoch Castle gardens, and they were invited out to Thailand and Japan to do some whisky tastings in February, and from the intimate feedback they received from those countries as well as neighbouring Taiwan, it became clear just how serious the situation was from how it was being dealt with there.
“We began to plan for a lockdown in February, but nevertheless throughout that month and into March, we saw our trade evaporate and we were running out of money quickly with 20 employees on payroll and having spent a large sum of money on recent refurbishments. The lockdown eventually came as a relief purely because it put an end to the immediate uncertainty.”
Yet, even with the lockdown and the government’s business support measures, it still left the business facing a major problem, as Thompson explained.
“Most hotels in the Highlands are at their lowest ebb in the winter months before revenue picks up in the summer. With no guarantee it would pick up at all because there was now a lockdown, there was incredible worry. The first three weeks of lockdown were terrible when we didn’t know how we’d finance ourselves, and the measures brought in by the chancellor were helpful but it was a long drawn out process to access that support, taking around ten weeks for our application to be processed.”
Despite the enormity of the situation, Dornoch Castle Hotel was able to find a short-term solution to help the business survive, which came from looking outward and turning to the community.
Thompson said: “To help us get through the period, my son suggested crowdfunding after it had proven a successful means of helping get the distillery business started. We set a target of hitting £40,000 within 21 days and set up over the Easter weekend. Within 48 hours we hit our target with donations coming in not just locally but worldwide. We have repaid our contributors with a 120 per cent voucher.
“This continued for the next few weeks and it gave us a lot of confidence that we could make it through, and now we’re at the point where there is a route forward and we know when we can begin to reopen certain parts of the business.”
The main worry for Dornoch Castle Hotel along with many other hospitality businesses across the UK is that consumers will utilise their services at sufficient levels to sustain the businesses as government support begins to wind down.
According to Hemswell Coldstore managing director Steve Hill, there may be some hope for the industry, with some of his clients operating in the hospitality industry beginning to see demand return.
Hill said: “As a frozen food warehouse, we have had to remain open throughout the pandemic and contend with the balancing act of helping customers who have seen their demand for products increase over lockdown, while other customers who run catering firms have seen demand evaporate overnight.
“Initially it was difficult to assess how over time it would affect our clients. There was a dramatic drop in turnover for some, and others saw demand go up over the lockdown. However, since businesses have begun to reopen, we are now seeing a levelling of the playing field as of July with demand for catering business in the hospitality industry beginning to return, and the companies who were seeing an initial turnover boom are now seeing that increase in income recede somewhat and it is beginning to level out.”
However, although some businesses are seeing demand increase, Nicholls believes that the government must prolong its its employment retention measures and extend the business rates holiday and VAT cut to incentivise consumer spending and safeguard the future of the sector.
Nicholls said: “The support the government has provided has been crucial in ensuring that many businesses have survived the initial shock of lockdown and stimulated a return of some demand.
“Without further support, however, we are going to see more and more venues going out of business and people continue to lose jobs.
“This means we need to see an extension of the business rates holiday and VAT cut, employment support for those businesses unable to open and financial support on rent. Otherwise, we are going to see businesses fail and jobs lost just as the economy begins to reopen.”
