Kroll, the leading independent provider of risk and financial advisory solutions, revealed today in its new survey fresh fears that restaurants and other businesses in the hospitality sector may be forced to close in the coming 12 months as a result of inflationary and staffing pressures. The Kroll Business Sentiment Survey of Restaurants & Hospitality, carried out in partnership with the Restaurants Association of Ireland, revealed 67% of businesses are concerned for the coming year.

These findings follow news of the extension to the reduced VAT rate for the hospitality sector, but at a time when businesses are no longer able to warehouse additional revenue liabilities. Over a quarter (27%) of businesses surveyed, which availed of the tax warehousing scheme, indicated they would not have been able to pay the associated debt in the next 12 months if the Revenue’s Tax Warehouse Scheme wouldn’t have been extended, while a further 12% were unsure if they would be able to repay the debt.

Energy crisis

The hospitality industry reported coming under significant pressure as a result of rising energy costs. A third (33%) of those surveyed reported an increase in energy bills of more than 100% in the past six months. A further 24% reported increases of 75%, and 31% of businesses saw increases of 50%. The biggest consequence reported in the Kroll Business Sentiment Survey of Restaurants & Hospitality of rising energy costs is a reduction of operating hours which was reported by 45% of businesses; 36% will reduce their head count; 30% will reduce menu options; and 80% will increase the price of their products or services.

Staffing challenges

Access to talent coupled with inflationary pressures has led to increased salary expectations and brought renewed pressures on the hospitality sector, according to the findings.

More than half of businesses (51%) surveyed reported their staffing costs are increasing due to a challenging labour market, with 84% of all surveyed expecting to increase staff wages in order to retain employees.

The majority of participants in the research believe it will be difficult to recruit and retain staff over the next 12 months. Some 79% indicated it will be a challenge. However, almost half (49%) of respondents suggested they will not be increasing staff levels in 2023.

Declan Taite, Managing Director in Kroll’s Restructuring Advisory practice, said: Businesses across all sectors, but particularly the hospitality industry, find themselves in a precarious economic environment, where rising costs and a challenging labour market are compounding their growth potential. Many will be restructuring to mitigate the risk of closure, although worryingly, the majority of participants in this research indicate closure is a real concern for them.”

“It is perhaps not surprising but nonetheless interesting that participants reported the government supports—reduced VAT and tax warehousing—were crucial over the past year, without which they might have closed. Some 61% say they would not have survived were it not for government supports. With so much uncertainty for many at this time, it will be important for businesses to plan accordingly.”

Some 14% of businesses said they will require professional restructuring assistance in 2023 with a further 26% unsure on whether this will be required at this stage.

Adrian Cummins, CEO of the Restaurants Association of Ireland, said: A number of issues, including staffing and inflation, have put restaurants and hospitality businesses under pressure, but others, including supply chain issues, footfall in urban centres post COVID-19 and rent pressures are also impacting them. Government supports will be an important feature of the survival of businesses over the coming year.”