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UK pubs and restaurants say they could be forced to cut staff and reduce trading hours, as higher energy prices add to a barrage of rising costs facing the sector.
“The hospitality industry’s reserves to take extra hits are running low,” said Ian Dunstall, a director at Upham Inns, a collection of pubs in the south of England.
Most large hospitality groups, such as JD Wetherspoon and Greene King, hedge their energy prices, meaning they will be shielded from energy cost increases prompted by the war in the Middle East for at least the coming months.
But some independent pubs, hotels and restaurants are exposed to a “real triple whammy” as rising oil and gas prices coincide with increases to the minimum wage and business rates that came into force on Wednesday, according to Kate Nicholls, chair of trade body UKHospitality.
Restaurants and hotels were both left out of a relief package designed to help pubs facing a big jump in business rates following the Budget in November, leaving the average hospitality property facing an increase of £3,126 or 15 per cent on their bills this year, according to estimates from UKHospitality.
The hardest hit have been off-grid rural businesses reliant on heating oil, said Nicholls: “If you need to fill your tank, you have to do that immediately and you can’t hedge against that.”
The Lanes Hotel and restaurant in Somerset is now paying 145p a litre for heating oil, nearly double the 76p it was paying before the onset of the war in the Middle East. That has raised costs by close to £500 a week, according to owner and operator Shaun Whitehouse, who said it was “quite a substantial hit as a relatively small business”.
Whitehouse cut his employees’ hours in March “just to keep ourselves as lean as possible”. He said he was afraid to pass on price increases to customers, who were “already cutting back on eating out and drinking out”, and could only hope that warmer weather would reduce his heating costs.
Almost two-thirds of hospitality businesses are planning to cut jobs as a result of the new business rates and higher minimum wage rates that came into force on Wednesday, according to a survey by NIQ, conducted on behalf of various trade bodies in February.
Even before the war in Iran began to choke global energy supplies, 93 per cent of survey respondents said energy costs were hitting their profitability and 15 per cent feared they would be forced to close.
“This is just the latest in a long procession of inflationary pressures that the industry is facing,” said David Roberts, a hospitality sector specialist at law firm CMS. “It’s starting to feel like a permacrisis.”
Some hospitality businesses were already suspending expansion plans and closing earlier to save money, said Roberts. For others, survival could depend on the timing of their energy contract renewals, he added.
Blacklock, a steakhouse chain that Roberts co-owns, hedged its energy contracts shortly before the onset of the war — a move he admits was “more luck than any brilliant forethought”.
Nicholls said many UK hospitality businesses were “better prepared” following the energy crisis sparked by Russia’s full-scale invasion of Ukraine in 2022. Bankruptcies that year among pubs and bars soared to their highest level in almost a decade, solidifying a push to hedge energy costs among large businesses in the sector.
But Upham Inns’ Dunstall said the blow from rising energy prices in 2022 was softened because it came when the hospitality sector was “enjoying a honeymoon after Covid”. Now, he said, rising energy prices combined with “so many other financial pressures that are affecting both us and consumers”.
Wetherspoons’ founder and chief executive Tim Martin said the hospitality industry was “possibly more vulnerable than it’s ever been”.
Wetherspoons, known for its low-priced drinks and food, last month warned that profits may fall short of expectations this year, citing higher labour costs, energy prices and taxes, as well as “considerable pressure” on consumer finances.
While pubs “in super-affluent areas” could pass on higher costs and retain traffic, Martin said that for most of the UK hospitality industry, high energy prices “have the status of the straw that breaks the camel’s back”.
