Covid-19 may be ‘final straw’ for hospitality firms on brink

The Scottish hospitality sector has seen a sharp year-on-year increase in severe financial distress in the first quarter, and Covid-19’s impact may prove the “final straw” for many firms, a new report published today has found.

The firm said it seems that 'beleaguered' hospitality and leisure businesses have continued to struggle. Picture: Getty Images/iStockphoto.

Insolvency specialist Begbies Traynor said its latest Red Flag Alert data shows that the sector in Scotland was already under severe pressure, with instances of “critical” financial distress in the three months showing a 500 per cent year-on-year jump.

The firm added that its quarterly research, which monitors the UK’s financial health, indicates that “beleaguered” hospitality and leisure businesses have continued to struggle amid fears around Brexit and a global economic slowdown, ahead of the “catastrophic” impact of the Covid-19 health crisis.

In the first quarter, bars and restaurants in Scotland showed a major uptick in “critical” or advanced financial distress (which refers to businesses that have had winding-up petitions or decrees totalling more than £5,000 against them) both year on year and quarter on quarter (up by 800 per cent).

Across the UK as whole, “critical” distress in the sector rose by a fifth, year on year, and 37 per cent from the last quarter.

Bars and restaurants in Scotland also saw 1,207 instances of “significant” or early distress (with minor decrees against them and those showing a marked deterioration in key financial ratios), a quarter-on-quarter rise of 5 per cent.

Levels of the less advanced “significant” distress were up by 3 per cent since the previous quarter both across the UK and in Scotland (now representing 509,314 instances across the UK and 26,233 instances in Scotland).

Lull

Ken Pattullo, who leads Begbies Traynor in Scotland, said that for many businesses, the post-Christmas period is the toughest, particularly in the likes of hospitality and retail, and this seems to have been the case in the first quarter, “except, worryingly, much more so this year than last”.

He added: “The last couple of years of economic uncertainty has now been exacerbated by the unexpected and devastating impact of Covid-19 which may, unfortunately, prove to be the final straw for many businesses in these sectors and, indeed, in many others. While the government’s attempts to offer some support to businesses are welcome, the reality is that this ‘sticking plaster’ approach may well simply delay the inevitable.” He called on businesses to consider “how to cope beyond the initial breathing space provisions”.

However, a separate study from Totaljobs and the British Chambers of Commerce has found that the logistics sector saw the biggest increases in advertised jobs in March. There was also continued demand in IT and tech.

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