In focus

Has "Eat Out to Help Out" saved the UK hospitality sector?

The UK’s hospitality industry began to emerge from lockdown on 4 July when pubs, restaurants and cafes in England were allowed to re-open. Their Scottish counterparts followed from mid-July.

The end of lockdown didn’t mean an end to the challenges facing the sector, with social distancing rules limiting capacity and customers wary of venturing to indoor spaces while the virus remains a risk.

The UK government therefore designed a scheme to support the restaurant trade. The Eat Out To Help Out scheme offered diners a half price discount on food and soft drinks, up to the value of £10 per person, if they visited a participating business on Mondays, Tuesdays and Wednesdays throughout August. Diners paid the discounted price and businesses claimed that discount back from the government.

As of 25 August, 84,000 businesses had registered for the scheme and claimed for over 64 million discounted meals.

Data from restaurant booking site OpenTable shows the impact. The chart below shows the growth in seated diners from online, phone or walk-in reservations in July and August, compared to last year's levels. The August peaks are clustered around the Monday-Wednesday operation of the Eat Out To Help Out scheme, with the final spike on Bank Holiday Monday.


The data also shows that the UK as a whole is performing very differently to London (the only UK city where this data is tracked by OpenTable). Even the Monday-Wednesday peaks in London were still well down on last year’s booking levels for most of the month, only turning positive on three days.

Anyone who has holidayed in the UK’s popular coastal regions during August will know that securing a restaurant booking early in the week required significant forward planning. Reduced capacity, plus extra visitors as quarantine rules put paid to trips abroad, led to a spike in demand in areas like Devon and Cornwall. Indeed, some businesses reportedly opted out of the scheme due to the pressures brought on by excess demand.

Meanwhile, scores of city centre restaurants remain closed or sparsely visited. OpenTable’s figures show only around 65% of London restaurants in its dataset are accepting reservations, compared to nearly 90% for the UK as a whole (as at 31 August).

The July re-opening followed more than three months of closure, during which time many hospitality businesses had no revenue coming in at all. Some were able to offer takeaway food. However, many had no option but to shut completely and put their staff on the government’s furlough scheme.

According to the UK government’s own figures, around 80% of hospitality firms stopped trading in April, with 1.4 million workers furloughed, the highest of any sector.

Rory Bateman, Head of Equities at Schroders, says “The hospitality sector is clearly one of the most severely affected by Covid-19 with months of complete closure followed by re-opening under social distancing rules.

“The Eat Out to Help Out Scheme has attracted customers but a bigger test will come in the autumn as the scheme ends. At the same time, colder weather makes outdoor seating less viable for many restaurants, putting a further limit on capacity.

“Investors in the sector need to be aware that companies entered the crisis in differing states of financial health. Lockdown measures saw businesses burn through cash with no revenues coming in, while even after re-opening profits will be depressed as capacity remains reduced. This means leverage (the ratio of net debt to profits) is likely to rise substantially for many firms.

“Business models are also very different across the sector. For example, some companies have the benefit of a large freehold property portfolio, while others are tenants who would need to negotiate with landlords around rent reductions or site closures.

“However, while some companies will struggle, others are sound businesses with a strong track record of delivering profitable growth. Investors will need to do their homework to identify which companies can emerge from this crisis as long-term winners.

“Shareholders may need to be patient and support such companies through this difficult period, including participation in rights issues (i.e. buying newly issued shares) as companies seek to rebuild their financial strength.” 


This information is not an offer, solicitation or recommendation to adopt any investment strategy. 

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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