Overheads reach tipping point for independent operators

29 July 2011 by
Overheads reach tipping point for independent operators

Independent bar, hotel and restaurant operators are trapped in a vice of rising business costs which is threatening their survival, a new report has revealed.

The study of 750 UK small businesses by Make It Cheaper and the Centre for Economic and Business Research (Cebr) found that small business overheads have risen by about a quarter (23%) in the last five years. Margins are being squeezed to such unprecedented levels that more than half of those questioned - 56% of small hotels and 59% of independent bars and restaurants - now fear for their survival.

Rebecca Mascarenhas (pictured), co-owner of neighbourhood restaurants Sonny's and KitchenW8, said: "We are facing the biggest ever rise in utilities, it's the most vicious in living history and we all have to use energy to create our product. On top of that, business and insurance rates are rising phenomenally and many rents are going through the roof."

But it's not just rising bills that are putting the squeeze on operators; there's a pincer movement occurring as the cost of basic raw products rises and the public demand continual discounts or deals.

Mascarenhas added: "It's a double whammy and we're being hit on every single front. The market place is more driven towards deals, ingredients have gone up but sales are also depressed for a lot of businesses because of the constant demand for offers."

Alice Keown, agent at property consultancy Davis Coffer Lyons, said the big players have also added to the pressure on the independents. "All the major national brands have used the time to batten down the hatches, streamline costs and put their back-of-house processes in order, so the competition from this sector is now a lot stronger."

Martin Couchman, deputy chief executive of the BHA, wasn't surprised by the report. "The bottom line is that costs are an issue, especially for small businesses which don't have the marketing muscle of bigger companies," he said.

The study also found that rising costs were limiting the growth of about three quarters of independent hospitality businesses - 71% of independent hotels and 77% of small bars and restaurants.

But Keown said that this was also due to the continued reluctance of banks to lend to smaller operators. She said: "The investment tap has not been switched on for independents yet, so it's still really hard for them to get funding from the banks for refurbishments or new sites.

"However, we've actually seen less insolvencies in this sector than we were expecting, although there are still probably some yet to come."

cost of red tape continues to rise
Despite the Government's stated aim to reduce the burden of red tape, research has found that small firms are spending more time and money on compliance than ever.

According to the Forum of Private Business, 84% of its members reported an increase in time spent on complying with legislation compared to 2009, while 67% were paying external consultants to avoid legal pitfalls. On average each firm paid £14,200 annually on compliance.

The Forum's head of campaigns, Jane Bennett, said: "Despite several government initiatives, it is clear that we are heading in the wrong direction as far as reducing regulation for small business owners is concerned."

As basic costs rise and the public continues to demand discounts or deals, the uncompetitive rate of VAT continues to hold back the industry.

That is why Caterer and Hotelkeeper is urging readers to support the Slash VAT campaign. We are calling for the Government to reconsider the 20% currently levied on hospitality - the second highest in Europe - and enable the industry to compete on a level playing field with the rest of Europe.

There is a compelling case for a reduction that would both boost Treasury coffers and hospitality businesses, but the campaign needs your support.

â- Follow us on Twitter: â- www.caterersearch.com/SlashVAT

extend the spend
The good news is that Caterer and Hotelkeeper will continue to offer business advice to help you get customers through the door and spending.

Look out for our special "Extend the Spend" 12 August issue in which we will offer cheap ways to tempt in business and tips on drawing maximum revenue from each guest.

By Emily Manson

E-mail your comments to Caterer News here.

If you have something to say on this story or anything else join the debate at Table Talk - Caterer's new networking forum. Go to www.caterersearch.com/tabletalk

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