Pubs warned they face cost of living 'perfect storm'

Christmas and New Year's Eve should be a period for pubs and restaurants to fill their coffers – or at least enough to see them through any slump of January.

Instead, according to one industry figure, many saw a subdued end to 2023, with punters spending significantly less than normal during what is supposed to be the hospitality trade's "golden quarter".

"This was definitely not the New Year's Eve that we know," Night Time Industries Association chief executive Michael Kill told Yahoo News. He said some businesses have reported a downturn in revenue of 15-30% over the period.

While the number of customers didn't drop quite as much, Kill said many of them were spending less than usual. He added: "There's a few people who have not traded on New Year's Eve, which is unheard of in many respects."

Kill said some businesses have even suggested Halloween was a busier period. With New Year's Eve landing on a Sunday, the problem is partly due to timing, said Kill, who pointed out: "People can't afford to go out consistently over three days." However, he had no doubt that the cost of living crisis played its part, warning of further challenges in 2024.

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Although inflation has been slowing, it's still nearly double the Bank of England's 2% target, and, as Kill pointed out, it will be some time before businesses struggling with higher costs from suppliers really start to feel the benefit.

While pent-up consumer demand after the lifting of COVID restrictions is just one driver of inflation, Kill said bars, restaurants, clubs and pubs saw operation costs rise by around 40% in the years following the pandemic. He added that this, along with inflationary pressures driving customers away, means the industry is now facing a "perfect storm".

This could be made even worse by some upcoming government reforms, said Kill, who argued an extension of the 75% discount on business rates has been 'gazumped' by the National Living Wage increase.

Watch: Tories shouldn't congratulate themselves too soon on inflation, shadow minister says

Claiming the industry is "back to square one", particularly thanks to an upcoming increase of duty on higher-strength alcoholic drinks, he said: "We're overburdened with tax, overregulated and moving into a year where we've had a very challenging golden quarter. We have such a reliance on that period to survive the slower months. We've just not achieved there and there's a lot of people talking about just handing keys back. I mean that's how critical it is."

'Heartbreak' as restaurants close their doors for good

Some restaurants who fought to survive over the Christmas and New Year's Eve period have already taken the decision to shut amid a bleak economic outlook.

Celebrity chef Simon Rimmer said he was forced to close his vegetarian restaurant after 33 years because it became "impossible to continue" due to soaring costs. Announcing the closure of Greens, in Manchester, he said a 35% rise in rent and spiralling costs in raw materials had made the business "unviable".

“So with immediate effect, we’ve unfortunately shut the door. It’s a heartbreaking day," the 60-year-old Sunday Brunch star added. That same day, 2015 MasterChef finalist Tony Rodd said he had also been forced to close his restaurant, Copper & Ink in Blackheath, London.

“We are absolutely devastated, heartbroken – mainly for our team who have made the restaurant what it is, to all of our amazing guests who have supported us over the years," he said in a video. "To the people we’ve not met before but supported us, and to all of our suppliers who we’ve grown to love. So we’re very sorry to you all. The worst decision.”

How inflation is setting the high street to fail

Many challenges faced by the hospitality trade this year are out of businesses' control, according to Paul Newman, head of leisure and hospitality for auditors RSM UK.

He said the national living wage increase, food inflation, and "stealth costs" - including planned rises in business rates for the majority and rent reviews tied to the Retail Price Index - will leave businesses feeling the pinch.

"With the cost of living and cash-strapped consumers, hospitality businesses have a limited ability to pass on the cost through increased prices, so growth across industry could be stifled in 2024," he added.

This doesn't only apply to restaurants and pubs, with a number of big high street brands, including Homebase, Boots, Poundland and New Look, closing a number of branches amid a challenging year.

While inflation is coming down, the British Retail Consortium has warned a set of costs could derail the progress made so far. BRC chief executive Helen Dickinson said: “Retailers will continue to do all they can to keep prices down in 2024, but there are obstacles on the road ahead.

"New border checks for EU imports, hundreds of millions more on business rates bills from April. Government should think twice before imposing new costs on retail businesses that would not only hold back vital investment in local communities, but also push up prices for struggling households.”