Like so many others, Kevin Arundel ducked, dived, pivoted and swerved during the pandemic.

When the world was locked down, he transformed The Chophouse, his award-winning gastro pub in Ballsbridge, Dublin 4, into a takeaway. When social distancing rules commenced, he removed half the sets from his establishment and asked customers to pre-order their meals so he could make the financials work. 

“I won’t need six chefs, I can do it with three chefs because I’ve got all of my dockets already in,” he told The Currency in a May 2020 interview. 

He reduced his overheads, restructured his model and navigated his way through the pandemic.

Last week, however, he shut down the restaurant for the last time. 

In a statement on Instagram and its website, Arundel and co-owner Jillian Mulcahy said that after 15 years, the toll had become too high. “We have tried everything to keep our business going but the constant rising costs have finally made it impossible to keep our doors open,” Arundel and Mulcahy said. 

They are not the only ones shuttering the kitchen. 

Some 577 food-led businesses have closed this year alone, according to the Restaurants Association of Ireland (RAI), the industry lobby group. There were 45 industry closures in July alone. 

Pubs are suffering too. On average, 143 pubs have shut each year between 2019 and 2023.

The fear within the hospitality industry, however, is that the wave of closures is just starting. “I think the numbers are only going to go one way,” Noel Anderson, the publican and restaurateur, told me last week. “I think country pubs will decrease faster, I think restaurants are going to close at a rate of knots,” he said. 

The way Anderson sees it, there is a fundamental flaw in the restaurant sector at present. The Little Lemon, his own city centre restaurant, is booked out more often than it is not. Yet, it still struggles to turn a profit. “The margins are just too tight,” he told me. “Costs have just kept on rising.”

The decision to end the reduced Vat rate for hospitality has not helped, with the rate now restored to 13.5 per cent. Despite industry agitation pointing to the surge of closures, the government is not minded to reintroduce it. 

Dermot Crowley, the chief executive of the Dalata Hotel group, last week proposed bringing it back for food businesses only, and not for hotels. “It is really difficult for smaller bars and restaurants,” he told me, echoing a point made by the serial restauranteur Peaches Kemp in her interview with Alice last week. 

But it is not just Vat. 

Since the final quarter of 2019, food inflation has run at 18 per cent. Energy costs have spiralled. Consumer behaviour has changed, with more people working from home.

“Inflation challenges are having a large impact on cost of sales with raw material and labour costs being the most significant costs,” said Tom Murray, a director with Friel Stafford, the restructuring arm of the Ifac accountancy business. 

“Food and packaging costs have, in instances, increased by 20 per cent. Salaries and consumer spending power has not kept pace with this.”

It has made for a perfect storm.

Gavin Smith, who heads up DLA Piper’s restructuring practice in Ireland, said the increase in insolvencies is multi-factorial and this not unique to Ireland.

“It is a trend that we at DLA Piper are seeing globally,” said Smith. “For example, in the UK, hospitality insolvencies are up 20 per cent in the past year, and in the US, several restaurant chains and franchises have declared bankruptcy in 2024, including Red Lobster, while others have closed many locations. 

“Ultimately, changing consumer behaviour, declines in footfall, rising cost of labour, inflation and other economic factors are contributing to the growing number of hospitality insolvencies in Ireland and around the world.”

What can the operator do to stem the haemorrhage?

The accountancy firm PwC tracks the number of corporate failures on a rolling basis. According to its most recent data, the hospitality sector has recorded 91 insolvencies so far in 2024, including 50 restaurants, 16 cafes, 10 pubs and 15 other hospitality-related businesses.

This number is well below the figures touted by the RAI. Ken Tyrell, a restructuring partner with PwC, however, said that many smaller operators were sole traders, while others have not yet got around to winding up companies. 

He said that the fact that so many outlets were not using formal company rescue processes such as Scarp or examinership (just five this year) indicated fundamental problems with the business model and underlying profitability. 

“This tells us that there was no prospect of survival for these businesses and the profitability issues were not capable of being solved,” Tyrell told me.  

“When speaking with bar and restaurant operators, the recurring challenges relate to cost inflation on food, increase in labour costs due to wages and PRSI changes, increase in energy costs over recent years, post-pandemic demand shifts in urban areas and tighter consumer spending.” 

Pointing to the historical context, Tyrell said the rate of insolvency in the hospitality sector is closer to the overall 20-year average insolvency level, while all other sectors are currently well below historic insolvency levels. “The statistics back up the well-publicised issues that the industry is facing,” he said.

Summing up the problem, Tyrell said: “The issue in the industry is clearly about underlying profitability and not necessarily about unsustainable or historic debts.”

So, given that the Government is not for turning on Vat and cost deflation is unlikely, what can the operator do to stem the haemorrhage?

Colm Dolan is a restructuring specialist with Grant Thornton and has been working with several businesses in the hospitality sector. 

He said the operators needed to develop and monitor robust three-way cash flow, P&L and balance sheets “to identify cash burns”.

“From an operational perspective, managing product offering and costs is critical – focusing on products that require fewer vendors to streamline the admin processes of dealing with suppliers, lower staff time to increase efficiency and also lower product waste. Businesses need to assess and understand individual product revenues and margins and focus on, and drive the sale of, higher-margin and lower-cost products through promotion,” he said. 

Dolan said businesses needed to monitor the day-to-day trends, but also think long-term – pointing to the correlation between revenue growth and capital expenditure. 

“Whilst it is well known that the industry is in a state of flux, for businesses to continue, there needs to be a clear business plan with metrics that are measured and tracked,” he said.   

These are issues within the control of a business. However, when he speaks to restaurateurs and retailers, a number of issues keep coming out that are outside their influence.

“A significant issue we hear businesses talking about, particularly in Dublin City, is the impact on footfall and customers’ willingness to eat out in town following the riots and their view of the need for fast-tracking additional policing or security measures in town to support their businesses,” Dolan said. 

This was a point also made at some length by Anderson. “There are two major issues in the city centre where the Government have their head in the sand. There is nowhere near enough police, and the city is dirty. I’ve been saying this for years,” he told me last week.

Graham Kenny, a partner with the law firm Eversheds Sutherland, has been working with troubled businesses for more than two decades. The way he sees it, the wave of restaurant closures currently being reported is worrying in two respects. 

“Firstly, the rate of closures appears to be rising at an alarming rate,” he said. “Secondly, and perhaps more worryingly, restaurant closures signal the end to a vibrancy associated with our cities and towns across Ireland. 

“In this regard, restaurants may be regarded as canaries in the mine of our economy, signalling future troubles in hospitality and commercial property.”

Kenny said that Scarp was being underutilised, arguing that it “holds a range of tools for restaurants to shed their historic debts and continue to trade”. 

He added: “Before professional advisors tell directors to close their doors, they need to open this new legislation.”

Peaches Kemp has weathered upturns, downturns and a pandemic over her 25 years as a food entrepreneur. In her interview with Alice last week, she was open about the issues facing the sector, but also optimistic.

With good planning, she said, there is nothing to stop someone from entering the sector. “Like in anything, go into something being prudent and doing your homework. And I don’t think any of us should ever say never.”

Elsewhere last week…

Cairn Homes, the Dublin-listed housebuilder, said last week that favourable market conditions coupled with strong demand for its energy-efficient homes contributed to its strongest year ever. Its chief executive Michael Stanley spoke with Niall about its strategy for maintaining growth.

Fewer than four weeks out from its pre-election budget day, the Government is swimming in even more cash than previously forecast. By the end of August, the national tax take was €6.7 billion ahead of last year’s, according to new figures just released by the Department of Finance.

Thomas outlined where the money was coming from, and also spoke with the economist Seamus Coffey, who has been appointed chair of the Fiscal Advisory Council. “The economy is in a very strong position. There is no need for fiscal stimulus,” the economist warned the Government – a warning unlikely to be heeded.

Robert Mac Giolla Phádraig very deliberately chose the first Monday of September, US Labor Day, to unveil his new business SkillStack, a video streaming learning platform that collates short-form video lessons from experts. He explained why to Jonathan.