Forty percent fewer bar and restaurant firms were deemed to be in “critical distress” in Q3 2013 compared to the same quarter last year, although increasing numbers face “significant problems”, new research shows.
In total 120 companies in the industry were in critical distress in the most recent quarter, against 200 in Q3 2012. There was also a 30% decline between Q2 (172) and Q3 2013. Critical distress is defined in the Begbies Traynor Red Flag Alert research as having either a Crown Court Judgement (CCJ) against them totalling over £5,000 within a three month period, winding-up petitions against them, or having entered Corporate Voluntary Arrangements.
According to the survey, 12,497 companies faced “significant problems” in the most recent quarter, up 64% on Q3 2012 and a rise of 12% on the second quarter of this year. Companies in this category are those with CCJs of less than £5,000 filed against them or those that identified as a credit risk.
Consumer-facing industries including bars and restaurants were credited with helping drive down the figure for critical distress among all industries by 2% between Q2 and Q3 2013. The hotel sector experienced a 21% fall in the period, with a decline of 16% in food retailing and an 8% fall among general retailing.
However, the 2% decline represents a slowing of the reduction in critical distress across all industries; the fall was 9% in the previous quarter.
Julie Palmer, partner at Begbies Traynor, said: “Celebrating a return to form, the UK’s consumer-facing industries have seen significant reductions in ‘critical’ distress levels, both on a quarterly and an annual basis, following a strong summer of sales aided by the extended period of good weather across the country. With market sentiment improving and rising house prices giving homeowners increased confidence, consumer spending is proving to be the engine driving this recovery; good news for the consumer-facing sectors, which are so dependent on a positive Christmas trading period.
“However, with pay growth still lagging behind inflation, this consumer-led improvement could have worrying consequences for the wider economy as new research from the British Bankers’ Association suggests that this resurgence is being funded by a rise in household credit, which has increased for the first time in four years.
“With rising property values prompting still more consumers to increase borrowing, even amid fears of an imminent housing bubble, we are reminded of the boom years prior to the economic downturn of 2008, and hope that this is not a sign of UK consumers repeating past mistakes.”
