Sharp increase in bankruptcies in hospitality industry expected: '1 in 5 small business owners have problematic debts'

The number of bankruptcies of restaurants and other eateries is likely to reach a record high this year, experts at ABN AMRO believe. They count on around 450 bankruptcies this year. Small business owners in particular are suffering

The hospitality industry in the Netherlands is not doing well. ABN AMRO sees the problems piling up again. A major concern within the sector is rising costs. Inflation, increased energy tariffs and higher rental and wage costs are weighing heavily on profit margins. In addition, since 2022, producer prices of food and beverages have increased by 17 and 20 per cent. But can pub landlords and restaurant owners pass on these costs? Not always, notes Stef Driessen, Sector Banker Leisure at the bank. And that only increases the pressure on entrepreneurs.

Unprecedented rise in costs

Besides rising costs, collective wages grew by 22 per cent over the past three years. ''That increase is of unprecedented magnitude. I have not seen it rise so fast and hard before. The cost increase of food and beverages has also not risen so fast since the beginning of the millennium," Driessen says. What strikes him about the number of expected bankruptcies is that there is a big difference between smaller and large restaurants. "Almost 1 in 5 smaller catering entrepreneurs have problematic debts, while the percentage of catering entrepreneurs with more than 50 employees is equal to the average in the business sector."

Despite high costs, hospitality entrepreneurs can still do a lot to reduce them, Driessen believes. ,,Entrepreneurs can look at how they can increase labour productivity. That goes hand in hand with reducing staff turnover. One of the biggest cost items for hospitality entrepreneurs is familiarising staff. That takes a lot of time and money. New employees literally need time to find their way around the kitchen."

'Hospitality entrepreneurs, work together'

The fact that small restaurants in particular pay high costs for food and drink is due to the bargaining power restaurants have with suppliers. "Large chains negotiate the volumes they buy. In addition, they can force certain discounts." Small operators could also improve their bargaining power by cooperating more, Driessen suggests. "The Association of Approved Pancake Restaurants has a razor-sharp contract with beer brewer Swinckels. Members affiliated to it can buy beer much cheaper."

If you can't see the opportunities anymore, talk about it. Everyone has a stake in a resilient hospitality industry
Stef Driessen

Among on-trade operators, Driessen says it is taboo to discuss purchasing prices with each other. ''Of course, the brewers do not encourage this cooperation either. Besides, entrepreneurs are stubborn and there must be sufficient trust in the person who will negotiate with the supplier. They can always hire a self-employed person for this who has experience at, say, a food producer."

Also notable: many restaurants are not full on Tuesday and Wednesday evenings. Driessen therefore recommends focusing on repeat visits. ,,Only 8 per cent of guests return after visiting a new restaurant. That is really too low. The days of giving a peppermint with the receipt are over. Entrepreneurs can still gain a lot in this area by, for example, working with discount offers or offering a free glass of wine on the next visit."

Taboo on debt

A culture around having debts or the threat of bankruptcy does not help either, according to Driessen. In the Netherlands, he says, entrepreneurs are quickly seen as 'losers' if their business is not doing well. Entrepreneurs can still do a lot before they are bankrupt, as long as they sound the alarm in time. They can also seek anonymous and free help from organisations such as Moneyfit.co.uk. There are specialists there who can explain in great detail what the options are for reducing costs. Also, in terms of refinancing, much more is possible than people initially think. Based on transaction data, you can request credit from banks for refinancing in 15 minutes."

The number of bankruptcies continues to rise and there is no end in sight, according to Driessen. ,,We are currently in the middle of it and that is why I urge entrepreneurs to seek help. If you can no longer see the possibilities yourself, at least talk about it. The platforms and specialists are there and the government also supports hospitality entrepreneurs. Everyone has a stake in a resilient hospitality industry."