Will restaurants be a major casualty of the cost of living crisis?

There are many features that make a village, high street or city centre a vibrant place. The majority of our work focuses on the need for banking services to be maintained to ensure that residents and visitors can safely and conveniently access cash, spend and manage their finances. Likewise, small businesses need to deposit their takings in the same manner. The provision of such services brings economic and social benefits to the area: people can spend, businesses can thrive and employment is maintained. Combined, this creates the vibrancy that makes it a place people want to live and visit.?

There is no greater contributor to this than restaurants, particularly independent, family-run businesses. They cater for all occasions: celebrations, socialising with friends, business meetings and of course, the desire not to cook and wash the dishes. They represent the ultimate luxury and many play an institutional role in local communities, playing witness to life events from the cradle to the grave.?

Over the past year, we’ve been running research to understand how people are adjusting their spending habits to account for the increase in the cost of living. It’s important to note that many people in the UK are in a perpetual cost of living crisis. For whatever reason they don’t have enough household income to cover housing, energy and food costs. They rely on a combination of state benefits and charity to make ends meet but in many cases they face higher prices because they’re poor. This is called the poverty premium, which due to the cost of living affecting more people, has finally received the attention it deserves.?

Our research, which ran from June 2022-March 2023, asked people to identify which areas they will cut down their spending, given the rising cost of living. As you can see in the chart below, the intention to spend less has changed over time. For example, in November 22, nearly half (48%) of people said they would try to reduce the cost of their energy bills. This dropped to a third (35%) in March 23, likely due to government support with bills and the start of warmer weather.?

Intent to spend less on fuel has steadily fallen over time, from 33% in June 22, to 26% in Nov 22 and 21% in March 23. This reflects the gradual drop in the cost of fuel and, perhaps, a recognition of a new normal with regards to fuel pricing. As I am sure many are all too familiarly aware, it’s incredible how quickly one can get used to a price increase of an essential good.?

Please note that the ‘cancel expensive purchases’ category was ‘postpone expensive goods’ in June and November.?

It's the intention to ‘eat out less often and/or order takeaways’ that's the most notable. This is one of few categories that has steadily increased over time, from 39% in June 22, 44% in November 22 and nearly half (48%) in March 23. It seems that for a good proportion of the population, eating at a restaurant, or ordering a takeaway (a service which many restaurants offer post-Covid) is viewed as a luxury and if times are tight that luxury is dropped.?

This is bad news for the restaurant industry and comes at a time when they are not only recovering from the pandemic and lockdowns, but also a rise in food and running costs, such as energy, which is particularly high when running a kitchen. The Federazione Italian Cuochi UK, a chefs’ association, has warned that the doubling price of canned tomatoes, combined with Brexit, presents a difficult situation for Italian restaurants.

The impact is being felt across the whole hospitality industry. According to the Hospitality Market Monitor, overall, Britain has 13,793 fewer pubs, bars, restaurants and other licensed premises than it did in March 2020. There is a contrast between the fortunes of larger and smaller businesses, with the independent sector recording a 0.9% drop in numbers over the first quarter of 2023, while the ‘managed sector’ achieving growth of 0.3%.?

Looking specifically at restaurants, the number of sites has fallen by 7.8% between March 2022 and March 2023, the largest reduction behind nightclubs, which has reduced by a shocking 14.9%. Over the past quarter, restaurant numbers have fallen by 1.8%, narrowly behind nightclubs at 1.9%.??

The industry data correlates with our research. People are spending less in restaurants due to the cost of living crisis, which, combined with rising running costs, is resulting in many closing their doors for good. This is a great shame and could lead to the loss of vibrancy in many places that desperately need good, local, family-run institutions.

This article is by David Fagleman, Director, Enryo

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Hey! While we have you...what are you doing this Thursday at 11am? Why not join us for an Enryo Half Hour Briefing on the role of the Post Office in the UK banking. Our guest will be Martin Kearsley, Banking Director at the Post Office. You can find more details here.