Industry Update
Opinion Article30 March 2020

Covid-19: How The Hospitality Industry Can Find A Way Through

By Gareth Ogden, Partner at haysmacintyre

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The hospitality industry has been one of the sectors most badly impacted by the Covid-19 pandemic. Across the UK, all pubs, bars and restaurants have had to close their doors and shut up shop, in order to abide by the unprecedented measures ordered by the Government.

Although these measures may have provided some certainty to operators after days of confusion, they will also doubtless breed fear and concern among the leisure and retail sector alike. With premises forced to completely close, the hospitality industry faces a period of huge change and re-adjustment.

Staying above water

With an uncertain road ahead, the future prosperity of businesses and workforces will be a major concern. As most are facing entire income streams being lost, businesses are having to prioritize reduction of costs and cash flow management. To stay afloat during this crisis, maintaining strong communication lines between all stakeholders will be vital.

High on the agenda will be supporting staff and preventing a slew of redundancies. Operators will have invested considerable time and money in training their teams and establishing their working culture. It is imperative that they maintain the goodwill of their staff and engage with them as much as possible through the crisis to ensure their investment is not wasted and their teams provide continuity and consistency when the business is able to re-open its doors. Fortunately, the Government's Coronavirus Job Retention scheme should help with this, by lessening the burden of keeping staff on the payroll during this time period. The scheme enables businesses to register employees who can no longer work as 'furloughed workers' through HMRC's online portal, which then requires HMRC to reimburse up to 80% of these wages (which is capped at £2,500 per month). However, the Government still needs to establish how this scheme will operate in practice. Urgent clarification is now needed on when the reimbursement scheme will be up and running and how it will apply to specific circumstances.

The Government has also announced that all hospitality, retail and leisure businesses across the UK, irrespective of their rateable value (R.V.), will not have to pay business rates for the 2020/21 tax year. In addition, those businesses operating on smaller premises, with a R.V. between £15,000 and £51,000, will receive a £25,000 cash grant.

Further action has been take by the Government to ensure that commercial property landlords cannot evict tenants for the next three months due to non-payment of rent. Whilst this will provide some security for businesses whilst they get their finances in order, obtaining lasting relief from rental obligations will be vital throughout this crisis, and so negotiations between operators and landlords must continue to achieve a sensible and sustainable outcome.

Another measure implemented by the Government is the Coronavirus Business Interruption Loan scheme. Businesses with a turnover of less than £45m will be able to borrow up to £5m from banks, with the Government providing security for up to 80% of the loan. With the first 12-months also interest free, these loans can provide short-term liquidity and help to bridge the gap until other government support measures are felt. However, whilst these loans may provide businesses with relief in the short-term, it is important that they consider the longer term implications of taking on the burden of further debt. Additionally, many operators are struggling to agree sensible terms quickly with their banks, so it is still unclear as to whether these businesses in need of a fast, short-term loan facility will actually find this scheme effective.

Businesses have also been looking to maintain income through alternative streams, for example by changing their offering to takeaway or delivery. However, following the further restrictions implemented by the Government, restaurants may need to discuss with delivery platforms to ensure they are able to continue such offerings. Alternative measures to alleviate cash flows have included offering vouchers that require up-front payment now to be redeemed in future, when operations recommence.

Going forward

Although difficult times lie ahead for the hospitality sector, businesses must plan ahead for when normality eventually returns. For the time-being, retaining both staff and customer loyalty is a must. The continuity and commitment of staff will prove crucial when normality returns. Additionally, customers will look to how local businesses have contributed to the the local community during a period of crisis, so keeping customers engaged throughout the process is critical for when their regular social lives begin again in earnest.

For ensuring the return goes as smoothly as possible, having tight recovery strategies in place is also crucial. This includes carefully modelling supply to meet demand, including making sure that stock is not over-ordered (but still sufficient for customer requirements) and that too many staff are not taken out of furloughed status too early. Additionally, larger businesses operating on multiple sites must consider whether it is financially viable to re-open all sites, or if key sites should be prioritised initially.

With news of the coronavirus affecting the global economy dominating the headlines, it is easy for businesses to feel overwhelmed. However, when the peak of the disruption is over, attention must be turned to recovery. Being proactive and ensuring that a clear strategy is in place, alongside utilizing the support measures provided by the Government, will enable the UK hospitality industry to transition back to normality as smoothly as possible.

Gareth Ogden

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