Crowe, accountancy practice and trade partner to the Restaurants Association of Ireland (RAI), has revealed the results of a sentiment survey of the restaurant and hospitality sector.
The questionnaire, carried out between 24th August and 14th September amongst 127 members of the RAI, was designed to examine how the pandemic is affecting the outlook for the sector and the views of business owners to supports required to sustain their operations through to a recovery.
The survey was completed when businesses were operating under Level 2 restrictions allowing in-house dining across a broad spectrum of food businesses across Ireland.
With the industry now facing into another period of increased restrictions, these businesses are set to lose an additional three weeks trade in 2020 on top of the three months lost by 87% of respondents who were fully closed April to June. The survey revealed that the average cost to re-open was €17,200 per business. More costs will have to be incurred to deal with the current closure and the next re-opening events.
With the likely absence of Christmas parties and corporate lunches this year, coupled with the latest restrictions moving to Level 3, revenues for the final quarter are expected to be down a minimum of 41% on 2019. The loss of a quarters revenue and disruption costs will turn many profitable businesses into loss making businesses for 2020.
The survey found that businesses in the sector expect to be impacted long in to 2021 with 79% of respondents expecting revenue to be down for at least 12 months and a further one in five expecting that impact to last for more than two years.
With 46% of revenue in 2019 derived from international visitors, businesses will also find it difficult to recover until international travel restrictions are fully lifted.
Businesses have initiated measures to manage cash flow pressures with 35% on full payment break, 13% on interest only and 48% of respondents saying they could not afford to repay principal on their loans. 65% of respondents could, without additional facilities, run out of cash in 3 months. The uncertain economic and trading environment means there is a reluctance to take on more borrowings with less than 20% saying they availed of SCBI support and just 15% availing of Microfinance Ireland support. However, more than 90% availed of both a restart grant and the wage subsidy scheme, 80% used the local authority rate waivers, while 60% used the deferment of VAT and PAYE.
Without the EWSS, payroll costs would have been 44.9% of revenue in 2020, a level that would not have been sustainable and without EWSS many more hospitality businesses would have already closed down. Up to Wednesday’s restrictions, respondents had managed to bring back 71% of permanent staff and 55% of casual staff on to their payroll.
Just 41% of landlords facilitated rent reductions, with four out of five applicable for less than six months. 65% of those negotiated sizeable discounts of between 41-100%. Amongst the 59% who did not facilitate rent reductions, 23% wrote off rent while 29% deferred rent for the closure period.
Businesses are concerned that they will not be able to sustain the rising cost of insurance premiums. 54% of respondents were forced to pay an increased premium at their last renewal with an average increase of 19% in one year.
To ensure businesses can recover and operate on a sustainable basis throughout the lifetime of the pandemic, it is likely that wage supports will be required for all of 2021.
When asked to rank the importance of varying supports to the sector a waiver of commercial rates for 2020 emerged in first place and a reduction of the VAT rate in second. Respondents are evenly split as to whether the 13.5% VAT rate should be reduced to the previous level of 9% or to the level in place for the UK at 5%.
There is also now a strong argument that the Covid-era tax warehousing scheme for hospitality businesses be opened until end of October 2020 rather than end of August 2020 to allow businesses file their September payroll tax return, defer the liability to after November 2021 and be compliant so their first EWSS claim for September is made by Revenue. This could be brought in by new guidance by Revenue. This would provide a payment break when cash flow is stretched to breaking point for many businesses. We know from the last recession that it is not the fact that a business is loss making that forces it to close but the fact that it just cannot pay the next bill.
Speaking about the impact of Covid 19 on the sector and the further impact of restrictions moving to Level 3 nationwide, Aiden Murphy, Partner at Crowe, commented: “The survey indicates the indefatigable spirit of operators in the restaurant and hospitality sector as the number of businesses that were able to reopen after three months of closure is remarkable. This feat was only achievable through a solidarity of purpose supported by Government with the TWSS and rates initiative, banks through easily accessed payment breaks on loans and the forbearance of landlords. This of course is underpinned by the hard work of business owners to re-establish as lean a business as possible and trade to its potential given the capacity constraints and uncertainty as to patterns of demand. Several respondents noted they were working double the hours they normally did to ensure their business survives.
As 2021 will only at best see a modest let up in business pressure points, all of the measures which when introduced were for obvious reasons temporary in their design, will need be replicated for all of next year if we are to carry on with the providing of the hand up to save these businesses and the jobs they provide.”
Speaking about the sentiment survey, Adrian Cummins, CEO of the Restaurants Association of Ireland said: “This independent survey conducted by Crowe demonstrates the stark reality of the impact COVID 19 has had on restaurants and hospitality not only since March 2020 but long into 2021. Independent SME restaurant, café and gastropub businesses simply will not survive without expanded Wage Supports, a reduced VAT rate and a hospitality aid package. Businesses were expected to be down 41% for Q4 2020, with Level 3 restrictions now in place nationwide for the foreseeable, restaurants and hospitality have essentially been instructed to close. Outdoor dining is not feasible during these months in Ireland and the limit of 15 people makes it unsustainable.
“Without swift and specific supports for the restaurant and hospitality sector, 180,000 livelihoods are in danger.”