If the hospitality industry is a measure of the wealth in people’s pockets then the news is very bad indeed. The industry is facing one of its worst times in memory as pubs, clubs and restaurants close at an unprecedented rate.

Insolvencies in the sector have risen by 95% in 2 years as people opt to stay at home and preserve their cash rather than splurging on luxuries like nights out, meals and other entertainment.

A report by consultancy PricewaterhouseCoopers (PwC) showed that there were 281 business failures in the third quarter of this year, up from 175 last year and well ahead of the 220 insolvencies reported in the first quarter and the 212 recorded in the second. It was almost double the number reported – 144 – in the final quarter of 2006.

Pubs, clubs and bars have been struggling for some time, especially after the smoking ban. Hotels, which had proven to be resilient to the slowdown, are closing at almost double the rate from a year earlier in the third quarter.

The trend is likely to continue to deteriorate as the full effects of the crunch are felt across the broader economy. One notable exception is Whitbread which owns a chain of budget hotels which is seeing growth as business customers scale down and use its Premier Inns brand in a bid to cut costs.

According to Stephen Broom, the hospitality and leisure director of PWC, “As the downturn tightens its grip, it is easy to believe what we have seen so far is just the tip of the iceberg for hotels,” he said.

“Although hotel insolvencies have increased by over 150% from the end of 2006 to October 2008 there will be further failures in 2009 when the full impacts of reduced demand will be felt.”

“There are no surprises that in the last year pub insolvencies have increased by 113%,” Broom said.

“The majority of pubs suffering distress are wet-led community pubs losing out to supermarkets. Some have also found the competition from well known pub chains has had a detrimental effect as brand and familiarity become more important to consumers when personal expenditure is under pressure.”

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Tags: hospitality industry recession, hospitality insolvencies