“The energy crisis is biting but has further to go yet.”
That’s according to Mark Brumby, principal at Langton Capital, a hospitality investment advisory firm.
Pubs, bars, and restaurants up and down the country have called on the government to provide support with rising energy costs, with some adding they may go bust or be forced to temporarily close if relief was not provided.
And August’s monthly insolvency statistics tell us that for some, it may already be too late.
August saw 1,933 registered company insolvencies across England and Wales, an increase of 43% on the prior year and 42% higher than 2019 levels, although it is unclear exactly how many of these were in the hospitality sector.
Friday’s emergency budget should hopefully provide clarity on what help is available to deal with spiralling energy costs, given businesses do not benefit from a cap on what suppliers can charge.
But a lot more help might be needed if Brumby is right in his assessment that the hospitality energy crisis has yet to peak.
Energy crisis already taking its toll?
Simon Emeny, Fuller Smith & Turner’s chief executive, echoed concerns on energy in a trading statement issued today, adding that “businesses across the hospitality sector are experiencing unsustainable increases in energy costs.”
A report by the Guardian at the end of August said some of the bosses behind half of the UK’s 47,000 pubs said tenants were already giving notice due to energy bills, which in some cases were forecasted to rise fivefold.
That led to the British Beer and Pub Association sending a letter to the Conservative party leader candidates Liz Truss and Rishi Sunak calling for help.
“The industry isn’t bluffing,” said Brumby.
“Many balance sheets are very thin, of sole traders in particular,” he added.
Independent pubs not owned and managed by the bigger chains, such as Fuller and Mitchells & Butlers, are the pinch point, he adds.
What can be done?
Emeny said the government has to step in to deal with the issue.
And as Friday’s emergency budget edges closer, an energy cap or one-off payments toward bills are being heavily touted.
However, according to Brumby, energy problems aren’t the only issue weighing on the sector and soon it will be almost impossible to separate it from the “Covid hangover, Brexit staff problems and general inflation.”
Therefore, the answer to ‘what support is needed?’ is “quite a lot.”
Hospitality businesses, especially sole traders, will be hoping for more than just help with energy bills.
Incentives to deal with staff shortages and encouraging people back into the pubs are critical.
Brumby though believes aid will likely not be available for everyone and that “brutal times” lay ahead.
“Rishi Sunak [former chancellor] said the Treasury can’t support every lame duck, so the degree of support will have to take that into account.”
It might boil down to a little bit of support for everyone in the sector with some receiving more than others.
Whether that will be enough remains to be seen.
Shares in Fullers were down 2% at 498p.