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Eat Out to Help Out was a tasty starter but hospitality sector needs a main

The Eat Out to Help Out (EOHO) initiative has been hailed a resounding success by the hospitality sector, but accounting experts have called on the government to extend the scheme amid growing concerns over the future of the industry.

9th Sep 2020
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The Chancellor helps to advertise Eat Out To Help Out

According to official statistics, more than 100m subsidised meals were eaten by UK diners in August, as the public took advantage of the month-long arrangement.

The offer of 50% off the price of a meal up to a maximum of £10 per head on Mondays to Wednesdays grew in popularity as the month went on, ending in a last-minute rush to enjoy the discounts, with a jump from 65m meals claimed to more than 100m in the final week.

The success of the campaign meant it would ultimately cost more than the £522m set aside in July’s Summer Statement by Chancellor Rishi Sunkak.

HMRC said 73,000 premises signed up, and now many restaurants have taken it upon themselves to further the scheme out of their own pockets. Accounting experts said the government may want to consider further leeway to really help the industry recover.

Extension calls

“I personally think the government should extend the scheme to December, as operators will also lose out on this year's lucrative Christmas party trade,” said Bhimal Hira of chartered accountants and Accounting Excellence award winners Jeffreys Henry LLP.

According to his own statistics, a slight overall increase in total weekly sales was reported when the initiative launched, and sales were concentrated between Monday to Wednesday, with Thursday to Sunday seeing a reduction.

Overall firms reported an increase from the week prior to the discount being applied, he said, but while many operators benefited from a boost in income towards the final week, it is too early to know whether it will have a lasting impact.

“From my personal perspective, and the clients we have in the industry, it was a massive success,” said Ben Steele, managing director of Steele Financial. “Sadly, albeit short-lived, but they all saw record increases in sales for August – and certainly for Monday to Wednesday.”

He said he hoped the government would have stretched the scheme to 31 October in line with the Coronavirus Job Retention Scheme. “Sadly, that didn’t happen, and restaurants are having to offer it themselves, taking the hit on profits if they want to continue it,” he said. “However, it could still mean increased business and if nothing else, brand awareness.”

Fears of substituting bookings from the weekends were, for the most part, unfounded and the net position overall was “very positive”, said Leighton Bower, partner at Rouse Partners, adding that one positive knock-on effect for restaurants was the rise in alcohol sales, which were not covered by the deal.

Campaigns have begun to get office workers and tourists back to city centres, but the public’s nagging caution over a second coronavirus wave is still depressing footfall and leaving businesses in a position where they require further help.

“Rent is still a big concern for operators, particularly those in London,” said Bower. “I feel that this has not been addressed by the various support measures, with rent deferrals, rather than reductions, simply pushing cashflow issues further down the line. The general feeling seems to be that the sector is not yet through this crisis.”

VAT cut not passed on

The temporary VAT cut from 20% to 5% for hospitality and tourism businesses was also a welcome fillip, experts said, with the real draw in the immediacy of the impact on cashflow.

“With the Eat Out to Help Out Scheme operators received 50% upfront and then had to wait until their claim was processed and approved to receive the remaining 50%. With the VAT cut this is immediate cash in their pockets,” Bower said.

Many hospitality operators have as a result opted to defer their VAT bill to March 2021, said Hira. “I would encourage operators to start thinking about how this will be paid and even making part payments now to reduce their overall balance,” he said. “Looking ahead, operators need to think carefully about the route to recovery.”

However, there were also observations that the VAT reduction didn’t benefit consumers, and itself may prove too short-term a measure

“This cut might have created headlines but was a much more difficult proposition for customers to act on,” said Professor Adrian Palmer of Henley Business School. “However, it might be much more helpful to restaurants than the EOHO scheme. Restaurants could manage it their way so a diner typically wouldn’t know whether a restaurant had passed on the VAT reduction or kept it to help its own profitability.”

Reducing VAT payments by 15% on everything for six months would help restore cashflow and balance sheets, he said, but for Sunak’s larger aim of inspiring confidence in the national economy, a VAT reduction has much less draw than another EOHO scheme for bringing in the crowds, he said.

“Some of the additional revenue generated will come straight back to the Chancellor through VAT on meals bought, and on income tax and national insurance payments made by chefs and waiters brought back to work to cater for the increase in demand,” Palmer said. “But trying to work out the intangible benefits of making businesses and consumers feel more confident about the economy is the kind of decision a CFO would not like to make, and an auditor would baulk at.”

He said the wider stakeholder gains also have to be measured against the possibility of stakeholder losses resulting from busy restaurants potentially spreading Covid-19.

“So, from this macroeconomic perspective, the jury will be out on whether Eat Out to Help Out was good for the nation’s finances,” Palmer said. “The Chancellor was commendably bold and acted rapidly to tackle an emerging problem. But as well as being a financial engineer, the Chancellor is also a politician at heart.”

Plenty to chew on

Many larger restaurant chains have already announced their own extensions of EOHO, and industry observers said this would give firms a lot to think about.

“These have come mainly from chains that have sufficient margins to promote them, and early movers gained a lot of free publicity,” said Palmer.

“But to make sense for restaurants, the proposition will need to be much less straightforward than the government’s simple proposition. Restaurants are likely to resort to time-honoured tools to make the most out of discount offers – different menus for different times of the day, a ‘specials’ menu, and sacrificing some part of the meal margin at a discount but making it up on ancillary items.”

Firms must also pay close attention to footfall, Steele said, as the shrunken margins on certain days could be too little, or even end up loss-making if not careful.

“Because of this I predict some may quickly cancel the scheme in September/October if they find numbers diminish at all,” he said. The public may also view the EOHO scheme as a gimmick that soon wears off, he said.

“Survival in the food industry is going to be an interesting one,” said Steele. “The best chance for these businesses is to take action now and ensure they have a solid digital-based financial system in place. Make sure they have live, up-to-date numbers, and a solid forecast at the very least. Know your numbers, scrutinise your costs. Have a plan in place for a decrease in sales, or worst case, a total lockdown.”

What was your experience of the Eat Out to Help Out scheme? Would you advise restaurants to continue out of their own pocket?

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