Here we go again? The impact of new restrictions on hospitality & leisure

Last night’s announcement by the Government re-introducing restrictions midway through a traditionally busy period to limit the spread of Omicron and protect the NHS have unsurprisingly caused uproar in the wider hospitality sector from pubs to restaurants, and hotels to leisure centres.

Scary sector headlines include:

• The new rules could “easily” knock 2 per cent off GDP.
• The taxpayer would have to “stump up billions more to prevent a new wave of bankruptcies and job losses”.
• An estimated economic cost to the economy of £4 billion a month. 
• Revenue from hospitality would fall by 15% to 20%.

Off the back of 21 months of restrictions in varying disguises, it is hard to for hospitality venues to continually close and open without incurring significant cost whilst also retain labour base, supply chain confidence and stakeholder confidence in a projected recovery.  

Throw in my previous posts around significant inflation (both visible and hidden) and the impact on the debt market perspective is clear – many hospitality and leisure operators will simply be unable to meet their financial obligations and trade liabilities going forwards.  Indeed, servicing existing financial debt with Net Operating Income being compressed from all sides will be hard enough even before seeking to attract new capital.

Clearly there will be some winners in all sectors, for example: larger players with substantial capital bases or well positioned/diversified offerings, or businesses with footprints less reliant upon corporate or international travel.  Such businesses will be able to access the bountiful capital currently available. However, for the rest there are again some difficult times ahead.

It may seem counter-intuitive to be promoting business planning and forecasting at this time but building a credible and flexible business plan will be vital for hospitality businesses to survive the coming months and then strive for full recovery.  

I call this “Underwriting the Future” and recommend working with a blend of external industry experts, typically specialist hospitality consultants and financial advisors, to identify and advise upon:

1. The most likely offering and market positioning for the asset/portfolio based on brand(s), location(s) and predicted customer buying trends.
2. Any required capital and/or brand maintenance expenditure to support the target offering.
3. The “best-guess” fair maintainable trade projections based on hands-on operational benchmarking and, if needed, performance improvement plans, through the recovery period.
4. The capital needs to get from “here to there”, including engaging with current stakeholders to assess appetite, capacity and economics.  This will likely require an updated valuation assessment.
5. If required, understanding the appetite and economics of new financial benefactors and the impact upon existing stakeholders.
6. Changes in senior management whether at C-suite or operationally (such as asset level General Managers).  This could also include undertaking fresh Operator selection processes.
7. Close asset management through the recovery phase to ensure trajectory and capital needs are in-line with expectations.

It is understandable that owners and operators believe they are able to undertake much of this work themselves, and indeed it may well be true.  However, having the external challenge and sanitisation of the recovery plan will be important to the perspective of current and prospective financial stakeholders.

The hospitality and leisure sector are vital to the economy and our well-being (both mental and physical), and in my opinion even more so than pre-pandemic.  It is vital that we collectively do everything in our power to protect the sector and its value.  For many owners/operators this may mean embracing some difficult conversations sooner rather than later, which of course holds an understandable fear of loss of influence and/or economic interests.

However, these conversations are coming and its always better to proactively embrace them as this is simply the best way protect everyone’s interests.

https://www.thetimes.co.uk/article/hospitality-bosses-warn-of-job-losses-and-bankruptcy-over-new-coronavirus-rules-0n3vhb5gp

https://www.thetimes.co.uk/article/cabinet-rift-over-plan-for-vaccine-passports-r29vmv85l