Brexit and hospitality: Impact on restaurants, cafes, pubs & bars

Here our hospitality Partner, Leighton Bower reviews some of the potential short-term and long-term impacts for restaurants, cafes, pubs and bars.

The pound

The pound is forecast to depreciate in value, which will mean an increase in the cost of imported items, potentially leading to higher production costs for businesses and squeezing profit margins.

Purchases currently account for the largest cost for most full service restaurant operators, at 38.9% of revenue, closely followed by wages. A fall in the value of the pound would mean that the value of imported inputs could increase, to the disadvantage of industry operators.

Consumer confidence

Lower consumer confidence could lead to demand falling or a change in consumer spending habits, perhaps opting for cheaper takeaway & fast-food services, or trading down to lower positioned or value brands.

Workforce

The industry employs a high number of EU migrants and potential barriers limiting the free movement of labour throughout the European Union could lead to a fall in the number of EU migrants available to recruit.

A 2015 study by the Migration Observatory found that about 13% of restaurant workers are from other EU countries. However, looking at the wider picture, another 2015 study by the Resolution Foundation found that migrant labourers from the EU make up 31% of all workers in the manufacture of food products. If Britain decided to limit the free movement of people in the European Union, this could lead to an increase in production costs for upstream markets, which would most likely be passed on to industry operators, squeezing profit margins.

However, many commentators believe that this is very unlikely and that there will be no limitations to EU workers post Brexit, so we will have to wait until further details emerge.

Less red tape for bars and pubs

For pubs and bars we could see some positive impacts. Before the referendum, the chairman of pub group JD Wetherspoon, the largest player in the industry, stated that British businesses would benefit from leaving the European Union due to the high levels of EU regulation regarding licenses.

However, many of the EU regulations are written in UK law, therefore these may remain post Brexit. Again, further detail will emerge as agreements and communications are made.

How can you respond?

Leighton Bower, Partner at Rouse Partners, comments, “Now is the ideal time to take a step back and review your business. Are there areas in your accounting system that are not efficient, have you reviewed your margins across the business, are your management accounts aiding your decision making and are you getting the right level of professional advice?”

“Many accountants and advisors may produce standard balance sheets and financial reporting that adds little value to the business. At Rouse we offer bespoke advice and reporting in areas such as the number of covers, average spend per head with a wet and dry split and the impact that adapting your menu could have.”