Nando’s running out of chicken and McDonald’s running out of milkshake – just two of the more high-profile hospitality businesses that are feeling the effects of the general supply chain bottlenecks. As the world looks towards the economy bouncing back, the UK’s recovery appears to be stalling as it struggles to find the staff needed to keep the supply chain moving.
What are the main issues?
For industry in general, lorry drivers are now in short supply (approximately 60,000 according to the Road Haulage Association (RHA)). This is thought to be partly due to the nature of the industry – there is a lack of new lorry drivers coming through the ranks (indeed, the RHA estimates that 30,000 HGV tests were unable to take place last year due to the pandemic), but the restriction of movement (pandemic and Brexit) has also impacted the availability of foreign drivers.
For specific foodstuffs, there is an acknowledgement that staff shortages will continue for the medium term at least. The British Poultry Council (BPC) has advised that its members are experiencing staff shortages as a consequence of Brexit, as many workers working in meat processing plants are historically from the EU, as opposed to the UK. The British Meat Processing Association (BPMA) has warned that there are likely to be more closures as the staff and supply shortages continue to cause challenges for the industry. Both the BPC and the BPMA have called on the UK Government to add their members to the shortage occupation list to enable their members to continue to benefit from overseas workers.
In addition, many hospitality businesses have been forced to close due to staff shortages. Although we expect that hospitality businesses in certain popular locations will be able to sustain these closures, this may not be true for businesses in other locations. Pricing is also a major issue for the hospitality industry as the price of food and drink is changing daily – we have been made aware of instances where businesses are unable to have printed menus with prices because they are having to change their prices weekly.
Increased costs – increased prices?
Lorry drivers are already being offered bonuses to drive for certain businesses. Tesco has reportedly offered £1,000 to new drivers, whilst dairy company Arla is offering its new hauliers a £2,000 bonus if they are prepared to work weekends. Whilst some of those increases may be borne by the supplier (for example, to reduce any damages claims for late deliveries), it would be wrong to assume that none of the costs will be passed onto the customers. With Government support being withdrawn, restaurants will need to think about adjusting their prices to cover any increased costs or risk trading at a loss.
Christmas may be challenging
No business wants to think about reducing availability after 18 months of disruption, but challenges with staff availability may still cause issues for the Christmas period, and there is no certainty that the current issues the hospitality industry is facing will have worked themselves out by the end of the year. Businesses that are thinking about their festive period staffing requirements are likely to find themselves nearer to the head of the queue when it comes to recruiting new staff – but a lack of available staff may cause inflated wage costs.
Managing the uncertainty
The current difficulties are unlikely to disappear overnight and businesses would do well to take steps now to identify what their cash requirements are likely to be over the next few months. Cashflow forecasts will help business owners establish what costs they need to meet and that will then help to calculate the income needed to meet those costs. Looking at your offering will be a worthwhile exercise – can you source the relevant ingredients relatively easily? Do you have the staff available to make the dishes? Do you need to train up any additional staff? Identify the potential issues sooner rather than later and that should help you tackle the issues head-on.
In conclusion
The challenges being faced by businesses at the moment will likely lead to increased costs in due course, whether that be in respect of labour, supplies or both. The aim of any business should be to enhance shareholder value – by increasing reserves – so make sure that any increase in the cost base is reviewed to determine whether the business can sustain that hit or whether it should be shared with the end-user (likely to be the consumer). If increased costs look like you will be trading at a loss for the foreseeable future, seeking advice as to how best to manage the position will be time well-spent.
If the above feels like it could be the straw that will break the camel’s back, please get in touch with our Restructuring and Insolvency team who are well-placed to help with any challenges that your business may be facing, both now and in the future.
If the above feels like it could be the straw that will break the camel’s back, please get in touch with our Restructuring and Insolvency team who are well-placed to help with any challenges that your business may be facing, both now and in the future.
