First-quarter hospitality insolvencies fall by half

22 April 2010 by
First-quarter hospitality insolvencies fall by half

A weak pound and stringent cost-cutting have helped bring about a massive reduction in the number of hospitality businesses falling into administration in the first quarter of this year.

Figures from restructuring experts at Deloitte showed that the hospitality sector had seen the biggest fall of all industry sectors, with insolvencies plummeting 52% for the period, compared with the first quarter of 2009.

Lee Manning, reorganisation services partner at Deloitte, told Caterer that the drop was unexpected, and indicated that the UK economy could finally be turning a corner.

"I think it is very encouraging. The numbers are lower even than they were in the comparison 2006/07 period," he said. "Operators have tightened their belts so they have got leaner businesses and they are cutting costs to the bone to survive."

Manning also indicated that sterling's comparative weakness against the euro and the dollar had also played a role in the fall in insolvencies, particularly within the hospitality industry.

"I think we are seeing a healthier economy," he said. "So off the back of it people are feeling more comfortable and are more prepared to spend. The other thing about hotels and leisure, of course, is that the relatively weak pound against the euro and the dollar means there is more business coming into this country."

Manning added that another reason for the drop might simply be that business owners were having to find other ways of coping with a failing business because there were so few buyers around.

"There's no money around to fund transactions, so if you want to put a business into administration to sell it, there's no one out there to buy it, so you might as well soldier on if you can," he added.

But the delayed effect of the extremely cold weather in the early part of the year, the uncertainty because of the General Election, and the chaos caused by the Icelandic volcanic ash cloud could all derail the improving trend, Manning warned. And he said that although the trading environment was starting to look positive, he didn't want to second-guess whether the trend of low insolvency levels would continue.

The first quarter of 2010 saw just 45 insolvencies in the hospitality sector, compared with 93 in the same period a year earlier, and 62 in the first quarter of 2008.

Overall, insolvencies were down 46%, to 555, for the first quarter of 2010, compared with 1,028 in the first quarter of 2009.

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By Neil Gerrard

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