Can hospitality weather the global credit storm?

16 October 2008
Can hospitality weather the global credit storm?

As the world faces up to a probable recession, the Caterer news team has canvassed the views of leading operators and industry experts about what has been done - and can be done - to help businesses through the hard times ahead

The Government's decision to make £500b available to UK banks to ease credit flow, while simultaneously cutting the interest rate to kick-start the faltering economy, was a bold gambit.

But direct action has already come too late for buy-to-let hotel group GuestInvest. The company found itself in administration early this month after HBOS was forced to withdraw its backing. It is not expected to be the last hospitality casualty of the credit crunch.

We spoke to operators and industry experts to get their reaction to the momentous events in the financial markets and find out what they expect the coming months to bring - and what they'd like to see done - as the economy dips into probable recession.

On the Government's action

Mark Fuller, director of Concept Venues, owner of Embassy nightclubs, said: "The Government had no choice but to step in. I'm not sure that the banks will use the cash injection to lend more money to small businesses and suspect they will just use it for their own profitability. I think we've still got a big shock coming."

Andrew Horder, director at property agent Savills, said: "The Government measures will take time to have an effect. The rate cut should help to restore some confidence, although further cuts will probably be needed.

"The base rate cuts have already helped lenders, and the banks received this cut on the condition that they passed it on to business. I think we should also put the stock market on hold, though, and sort out a more unified rescue plan with other countries' banks."

Damian Clarkson, managing director of Red Snapper Events, said: "I think the initiatives were good, but there is a feeling that until things are truly stable they won't actually get better. There is little confidence market-wide."

On the coming months

James Horler, chairman of restaurant chain Ego, said: "At the moment it's the financial structure of companies that is causing more problems than customers not coming to restaurants. However, trading will get tougher over the next year to 18 months, and banks want their money out. Just look at GuestInvest. A lot of companies seem to be due to renegotiate their financing in 2010, so for them it's a case of making sure their business is in shape."

Mark Derry, chief executive of Loch Fyne Restaurants, said: "There will still be funding available, as the mezzanine lenders will step in where the major institutions perhaps can't. Some operators will undoubtedly have to renegotiate their debt terms, but there's a hell of a lot of waste in our industry that we can eliminate to provide a buffer. Times like this make people focus hard on what's really needed and can actually be helpful to a business."

Robin Rowland, chief executive of Yo! Sushi, said: "I expect to see around a 5-10% fall in sales volumes across the restaurant industry, but, at the same time, people in general are eating out more, as they are working harder and don't have time to go home and cook. The challenge for us is to make sure we offer the customer value for money."

Tim Cookson, chairman of food service consultancy Litmus Partnership, said: "If credit continues to be hard to come by and cash-flow levels reduce due to consumers spending less, expect consolidation to take place within the contract catering sector, and the smaller businesses, especially those serving the cost sector, to come under pressure."

On what else needs to be done

Paul Ettinger, development director at Caffè Nero Group, said: "We are now facing a global crisis, and when countries such as Iceland are effectively bankrupt, the depth and duration of the recession will hardly be dented by the UK's unilateral action. A global response will be required to ensure success. It is likely to be a tough year for all of us in the hospitality sector."

Paul Campbell, chief executive of Clapham House Group, said: "Any measures that help restore stability and confidence amongst consumers are to be welcomed. However, we also need to see further significant reductions in UK interest rates."

Gary King, director at recruiter Collins King & Associates, said: "I am not sure what more the Government can do now - I don't think there is a plan B. Overall, the British economy is in very poor shape, and this correction has been a long time in coming. I think it will be a number of months before we see a recovery in the hospitality sector."

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