May 15, 2020

The Impact Of Covid-19 On The London Restaurant Industry

The London restaurant industry has, along with the entire UK hospitality industry, been devastated by the Covid-19 lockdown restrictions. London restaurants essentially acted as an early-warning system with regard to the effect that Coronavirus would have on the UK economy when it and the rest of the hospitality industry noticed a sudden drop in bookings during the last ten days of February 2020.

The slump gathered momentum as the Government delayed its response and issued mixed messages regarding the threat that the virus posed to public safety. Restaurant footfall further reduced following the announcement on 16th March that the public should avoid gatherings in places such as restaurants and pubs and completely dried up a week later when restaurants and pubs were forced to close.

Covid-19 and the hospitality sector

Coronavirus has devastated the hospitality industry in terms of economic impact and loss of jobs. Statista reported that, in the week preceding the Government’s advice for people to stop going to restaurants and pubs on 16th March, restaurant groups experienced the biggest fall in like-for-like sales at 21 percent, while bar sales dropped by 14 percent. The following week it was announced that pubs, bars and restaurants had to close to customers other than for delivery or takeaway. Over the whole month of March, bar sales dropped by 60 percent and restaurants by 56.4 percent.

UK Hospitality‘s own Quarterly Tracker reported that ‘the hospitality sector saw a 23.1% contraction in the three months to March, highlighting how hospitality has taken an unprecedented and hugely disproportionate hit as a result of the pandemic and must remain a special case for Government support going forward.’ The trade association’s Chief Executive, Kate Nicholls commented that ‘the declines we (the hospitality sector) are seeing in other sectors, alarming although they may be, are incidental compared to the truly alarming hit that ours is taking.’

The UK hospitality industry has essentially ground to a halt with an estimated 75% of companies in the sector closing and 85% of the workforce furloughed during the last two months. To put that into some kind of perspective, the hospitality sector comprises around 20,000 small businesses employing 2,500,000 workers and generates £1.3 billion – that’s £130,000,000,000 – turnover, making it the third largest provider of jobs in the country. The hospitality industry is larger than the automotive, pharmaceutical and aerospace industries combined.

Calls for government support for the hospitality sector

There is an urgent need for increased government support to protect the hospitality sector to ensure its survival. Acclaimed London restaurateur Marcus Wareing of Marcus Wareing Restaurants has commented that many restaurant will close leading to huge unemployment in the industry without additional Government assistance to the £100 billion sector.

London restaurants – along with the entire UK hospitality industry – were amongst the first sectors to be affected by the social distancing lockdown and by their very nature will be one of the last to recover. Government schemes such as grants, 100% state backed ‘bounce back’ loans and furloughing of staff under the Job Retention Scheme (JRS) have acted as a life support system for restaurants. State financial assistance to the hospitality industry will need to continue for longer than it will to other sectors as restaurants’ fixed costs – not least of all rent – will remain and even when they are allowed to open with enforced social distancing measures they will struggle to be profitable with the hugely reduced number of customers and revenue that social distancing will create.

Kate Nicholls has noted that ‘restaurants rely on high volume due to low margins of 4 – 8% so need to have 60% of revenue to make a profit and need government support to prevent opening at a loss.’ Other factors which will necessitate longer term Government financial assistance being provided the London restaurant industry – as pointed out by The Guardian’s Jay Rayner – include the facts that ‘post outbreak most restaurants could probably survive for 3 months before cash runs out without government support … a 6 month closure could typically cost a London restaurant up to £600,000 which would involve owner-backed guarantee with huge risks involved as the government Business Interruption Loan Scheme only covers up to £250,000 without personal guarantees … 80% furlough scheme has prevented most restaurants from having to shed their staff … fixed costs will remain … rent is on average 10% of a restaurant’s turnover and the fact that there will be a huge cost of restocking with ingredients.’ He has also questioned whether people’s people’s eating habits will have changed and if they will still wish – and have the money – to go out to eat again in such numbers. The lockdown has led to a huge surge in eating in with people refining & reigniting their home culinary skills.

London restaurateur David Moore of 2-Michelin starred Pied à Terre has suggested restaurants being granted a 9 month rent free period that becomes legally binding as a 9 month extension of the lease with the government providing financial assistance for landlords if needed; this idea being called National Time Out. As Will Beckett, co-founder of Hawksmoor restaurant group puts it, ‘every restaurant owner has a date after which all the money runs out.’ There is also only so much debt that businesses in the sector will be able or prepared to take on as the debt will need to be repaid involving additional costs to an industry which is already punch-drunk and on its uppers.

When will restaurants reopen?

The Government has announced the creation of ministerial-led task forces to determine a timeline along with Covid-19 safety procedure guidelines to enable businesses in closed sectors where close contact between people is unavoidable to reopen safely, describing the task forces as being ‘crucial’ to boost the economy. The brief of one of the specific task forces, operated by the Department for Business, Energy and Industrial Stategy, is to assess ways of enabling the safe reopening of pubs and restaurants with key regard to public health safety. These government initiatives follow Prime Minister Boris Johnson’s recently announced plan to reopen some restaurants in the hospitality sector in July ‘at the earliest’ … providing that ‘they are safe and enforce social distancing.’ Welcoming the announcement of the task forces, Kate Nicholls, Chief Executive of UKHospitality, commented ‘we have been persistent in pointing out that there is no one-size-fits-all approach to reopening businesses, even within the same sector, making such representations last month to Downing Street and The Treasury. A great deal of lateral thinking and planning will be required to help businesses open, hence our efforts to draw up protocols and work co-creatively with stakeholders to inform hospitality sub-sectors on how best to prepare venues for safe reopening. This is for the safety of staff, customers and visitors, and for hospitality to help drive economic recovery. It is therefore very welcome to hear that the Government will be listening to our recommendations, to jointly find solutions to reopening. We look forward to continuing to engage with the Cabinet Office and alongside members, in playing our part and having a clear message to support the reopening of hospitality businesses when it is safe to do so.’

What precautions will venues take against the coronavirus?

Creative use of technology-led ordering systems, payments and Apps will be key in minimising contact between staff to reassure customers and make them feel more confident that restaurants are safe environments to visit.    

Restaurants along with pubs are – by their very nature – places where people congregate intimately with scant customary regard for social distancing. The restaurant industry is an ‘atmosphere’ business where proximity to other people and the buzz of the room is one of the many factors which get customers through the door. Reduced customer numbers which social distancing measures will necessitate, combined with attendant drastic reduction in revenue, will make it touch and go whether even restaurants which do choose to reopen with restricted numbers will be able to do while making any kind of profit. It therefore follows that even if Covid-19 social distancing restrictions are relaxed in a phased manner to allow some kind of service provision being allowed, restaurants will be amongst the last industries to have reduced restrictions applied.

The very nature of social distancing presents an obstacle to the notion of reopening restaurants at a profit. Measures are being discussed within the industry to keep it afloat. Restaurants are waiting for the green light to reopen being given by the Government with reduced capacity to enable social distancing and public health to be protected. Once given, they will need to decide if and how they will manage to do so and feel their way through. Will Beckett of Hawksmoor has suggested that it might be advisable for restaurants not to reopen during the public health fear phase as to do so with restaurants featuring perspex screens and staff wearing masks could lead to long term damage being caused by possible public perception that restaurants are unsafe environments to visit. Other leading figures in the London restaurant industry including Des Gunewardena, Chairman & CEO of D & D London restaurant group are slightly less circumspect and considering reopening restaurants when allowed under relaxation of lockdown restrictions with social distancing of diners at 2 metres reducing restaurant capacity by 50%. To do so will involve extra costs for protective items such as masks and hand sanitisers and enhanced cleaning to reopen but might still enable restaurants to make a profit, albeit a small one. Again, key factors that would need to be involved to enable reopening at 50% capacity would include flexibility on rent, social distancing of kitchen staff, additional cost of protective equipment and public perception of social distance dining. Benefits of doing so would include getting people back to work and some kind of normalcy back to people’s lives. Companies with a portfolio of restaurants will be considering getting as many restaurants to reopen within social protection guidelines provided they are not losing money – if 75% of their restaurants can reopen with 50% revenue it may well be the solution to staying closed.

It is being suggested that it may be easier to reopen larger restaurants with extra space and foot cover with smaller restaurants with less space and higher density table space possibly posing more of a challenge. Restaurants and bars with outdoor terraces will also enable diners to be spaced out more. Other cities in countries including The Netherlands and Estonia are pioneering alfresco dining ideas. Ideas being trialled include the mini-greenhouses on the city waterfront at ETEN vegan restaurant in Amsterdam with 3 guests per ‘greenhouse’. Outside spaces are easier to manage in terms of minimising infection spread and may play a key role in the ‘new safe hospitality’ until Coronavirus restrictions are finally revealed.  The obvious concern is that the cost of investing in new safe hospitality innovation will prevent restaurants who worry that they will not have enough capital to reopen will prevent them from investing in such innovative Covid emergency hospitality measures. Alfresco dining is also something that is really only appropriate for the warmer and drier months but it will be a concept that will come to the fore when exploring how to reopen restaurants within public health safety guidelines. Turning outdoor spaces over to outside dining will require deregulation of outdoor space rules by Government and local authorities.

It may well be that private dining rooms at London restaurants will come to the fore as and when restricted restaurant opening is allowed. Private dining rooms, by their very nature, allow people to dine away from other restaurant customers. Hundreds of restaurants in London have private rooms with capacities varying from 6 – 60 guests which, even with social distancing restrictions and capacity reduction of 50%, would provide dining capacity for a reasonable number of guests.

Restaurants in London and throughout the UK are community assets, playing an important role in communities and enshrined in our social fabric. Restaurants and bars & their staff are amongst the centre of many people’s social lives, as social animals. Without Government support to the restaurant and hospitality industry being increased and extended until the end of the Coronavirus crisis the cost to the country will be many hundreds of thousands of jobs – possibly millions – being lost with  billions lost in revenue and contribution to national GDP. In addition there will be thousands of supply chain businesses and employees which are hugely dependent upon the industry which will be adversely affected.

An increasing number of upmarket restaurants which would not previously have entertained the idea are turning to fine dining takeaway and delivery to survive the crisis. Restaurants are using their survival instincts – necessity always being the mother of invention – in the face of forced closure by introducing takeaway and delivery services. Faced with no revenue, with looming rent payments & no real indication of how and when they will be able to reopen – and in the knowledge that the restaurant and hospitality sector will be amongst the very last to have restrictions relaxed – upmarket restaurants, including Kanishka & Hide in Mayfair & City of London based Duck & Waffle and Sushisamba, which would not normally have provided such a service have commenced doing so in these ‘new normal’ times with prepared food that travels well in a limited mileage radius within London. Casual dining groups such as Côte Restaurants are also providing meal delivery within the M25 areas with their Côte At Home service. Other restaurants are offering DIY ingredient kit delivery.

The restaurant industry is innovative by its very nature and with the necessary Government support will emerge from the Covid-19 lockdown crisis in a new, leaner and creatively customer-led format. Providing the the necessary state assistance is provided during the pandemic hundreds of thousands of businesses and jobs will be saved and a significant contribution to the nation’s GDP will be preserved.