Long-term crisis or great opportunity? The hospitality industry is facing a severe market shakeout

Will the big fish eat the small fish?

Klaus Preisner
March 19, 2021

Lockdown and restrictions have hit the hospitality industry particularly hard. Despite government support and furlough, bankruptcies and unemployment in the restaurant and hotel industry will increase sharply. Is this a long-term crisis or a great opportunity for starting-up and expanding restaurant businesses?


Severe market shakeout

After more than a year of lockdown, limited capacity and distancing in restaurants, a huge wave of restaurants will have to file for bankruptcy. In a survey of the KOF Swiss Economic Institute every third restaurant reported less than half of normal turnover for 2020. 59% of restaurants and 47% hotels consider themselves to be at high or very high risk of bankruptcy. According to Gastrosuisse, almost all of its 4200 members are in a critical liquidity situation. Every fifth business has already given up. German Hotel and Restaurant Association (DEHOGA Bundesverband) reports similar numbers, over 60% of restaurants have to fear for their existence, and 1 in 4 businesses is already considering closure. Even a collective rush for social events and dining out will not turn the doom into a boom. Pre-crisis levels will not be reached in 2021 as protective measures and tighter budgets for private consumption in lower income groups will probably continue to restrain sales in restaurants. According to international bank Credit Suisse, even those who have accumulated savings in lockdown won't make up for all the restaurant and hotel visits they missed last year. And a flood of restaurants will be up for sale in the coming months and restaurant spaces up for rent.


Markus Lichtenstein, CEO of Smith and Smith Wine Company Ltd and partner in several award-winning Swiss restaurants, has spoken to many restaurateurs about this: How are they weathering the pandemic? How are their businesses doing? Restaurants that were not insured against the pandemic suffer very high losses and are often on the verge of bankruptcy. Most others have also run out of reserves to survive further months in lockdown or operating at limited capacity. Gastronomers are desperately hoping for a quick reopening or further state subsidies to avert the final closing.

It is no secret that more than half of the restaurants in Switzerland do not make a profit. Insolvencies, closings, and start-ups are correspondingly numerous. The saying goes: for every restaurant that closes, a new one opens. 


In the midst of every crisis lies great opportunity

In 2021, due to recent experiences and the uncertain economic outlook, significantly fewer new restaurants are likely to open than had to close before. And it is precisely here that successful restaurateurs sense a great opportunity. According to Markus Lichtenstein, the creative hosts are eager to expand their businesses. They have soon started to watch out for superior locations to expand their business. Cooperating restauranteurs already exchange information on who won’t make it, what locations will be available, and what fits well into their portfolio of restaurants, And not to forget, it also will be much easier to hire trained chefs and service employees at short notice - until the end of 2020 more than 60% of restaurants already have reduced their staff, more will follow. Hence, we expect a very dynamic market with 1)  a significant increase in restaurant closures, 2) the survival of only the fittest businesses, 3) a concentration in the hospitality industry with a growth of professionally managed restaurant groups that can also manage and scale cost-efficiently thanks to digitization of their operations, while 4) only few newcomers will take the exceptionally high risk and start a restaurant in times of uncertainty.


Zoom substitutes for traveling

When it comes to hotels, the top-segment of 5-star hotels have lost the most so far. Turn-over was 65 % lower in Q4/2020 than in Q4/2019. But: Wealthy individuals lost a smaller share of income in the pandemic compared to low-income households - and hence will not have to cut their expenses as much. Once travel restrictions will be released, the premium hotels should quickly come close to pre-pandemic levels of bookings, turn-over and margins. However, business hotels as well as 3- and 4-star houses will continue to struggle for a long time, as the middle class and corporations will likely have to cut back on travel expenses and increasingly replace face-to-face with online meetings.


Now is the crucial phase for restaurants and hotels in which it will be decided whether the business has to let down feathers, find fattening grains or can lay really new fat eggs.  


What is the most important goal for your restaurants or hotels in 2021?
Avoid plant closures
Make my businesses profitable again
Seize the opportunity to open one or more new restaurants


The key now is to implement the right measures to regain a foothold after the lockdown, to stand out from others and to attract many guests. We have compiled some proven strategies on how restaurants around the world got through the lockdown well, quickly returned to profitability and are now growing. And above all, eyes open: If you have great ideas, good people at the start, financial resources, you will now find the best conditions to start new projects, at the best locations, with the right staff. The market pie is being redistributed. Now is the time to get you a big slice!

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