By Faye Jones, services portfolio underwriter at Atradius on the state of the industry, and whether Valentine’s Day can rekindle our relationship with the hospitality sector. 

If you were asked which industry has been the most affected by the pandemic and Brexit, there’s a good chance you’d think of hospitality. And although the economy as a whole continues to suffer, and many industries have yet to realise the full impact of the past two years, hospitality has been dealt a particularly bad hand. 

In reality, hospitality was at a tipping point even before the pandemic. Private investment in chain restaurants and cafes had resulted in a huge increase in the number of different outlets on our highstreets. With so much choice, building and maintaining customer loyalty was becoming increasingly difficult. Consumers were making choices based on what was new, or where had the best discounts. Lots of chains were already struggling.

Add to that, two years of on-and-off lockdowns, ongoing restrictions, and the emergence of the Omicron variant towards the end of last year, and 2022 is looking less positive than we’d hoped for UK hospitality. Although restrictions now look to be coming to an end, many people are still cautious when it comes to mixing with others. Cancellations are still causing major issues for restaurants and footfall is generally lower than we might have seen at this time of year pre-COVID, with many still working from home on a part-time basis and set to continue doing so. 

With all that in mind, Valentine’s Day does look set to bring a welcome boost to the hospitality sector, following a net loss of 8,228 hospitality venues, (a 7% decline) throughout 2021 as reported by industry analysts AlixPartners. There is likely to be a degree of pent-up demand from consumers who may not have eaten out much over the past two years and weren’t able to celebrate Valentine’s Day by going out last year. Holidays have been off the cards too, which means many of us are still – for now at least – feeling the benefit of having a bit more disposable income to spend on meals out. Valentine’s Day falling on a Monday this year is also good news for a sector that generally sees most of its trade towards the end of the week and on weekends. In reality though, while one day of increased trading will certainly be welcome, a bigger boost would be needed to benefit the industry in the long term.

Brexit continues to add to challenges for the sector and will do for the foreseeable future. The exit of EU workers from the UK, coupled with UK workers choosing to leave pre-pandemic careers in pursuit of jobs with more security, has contributed to significant labour shortages. The supply chain issues we’ve been seeing are expected to continue into 2022 as increased border checks come into force, and the cost of importing ingredients has skyrocketed. The energy price increases coming into force from April will also add to running costs for businesses, as will the rise in the National Living Wage. This perfect storm of cost increases for businesses will inevitably see some of those costs passed onto customers who already face an increase to their cost of living. This could mean that we see a drop-off in people choosing to visit restaurants and cafes, with consumers choosing to save eating out for special occasions. 

And while, so far, we haven’t seen a high level of insolvencies or closures within the hospitality sector, what we’re seeing isn’t the whole picture. Government support has helped mitigate the impact of the pandemic and Brexit over the past two years, but with much of that support coming to an end in March, it’s likely we won’t realise the full extent of the damage for another six months or so. We’re forecasting a rise in insolvencies across the board in 2022, but some sectors – like hospitality – which have been most affected by the lockdowns and ongoing restrictions are expected to fare worse than others. But it isn’t necessarily all bad news. 

Despite all the challenges the past two years have thrown its way, UK hospitality has shown itself to be incredibly resilient. Businesses have adapted to accommodate social distancing, offer outdoor dining, and deliver takeaways and meal box kits to keep revenue coming in. Costs will likely increase, but the appetite to get back to ‘normal’ and go out for meals and drinks is certainly there – it’s possible that pent-up demand could be enough to drive footfall back to pre-pandemic levels. Initiatives like ‘Eat Out to Help Out’ have shown us how quickly the industry can bounce back when the right incentives are put in place for consumers. Valentine’s Day itself may not be enough to bring long-term benefits to the sector, but the reminder of what it’s like to sit down for a meal in our favourite restaurant might be. Whichever way it goes, 2022 is certainly a year to watch. 

What we do know, is that uncertainty and the ongoing issues caused by the pandemic and Brexit make this a difficult environment to trade in. There’s never been a better time for businesses to think about their credit risk and consider whether something like credit insurance might be beneficial to help them weather the storm. Our doors are always open at Atradius if you want to find out more.