Are High-Cost Contracts Putting Hospitality at Risk?

A growing number of businesses are feeling the pressure caused by the volatility of energy costs, which have surged to unprecedented levels in recent years. The UK’s hospitality industry is bearing the brunt of the impact due to rising food prices, resulting in a staggering 4,600 establishments closing for good last year. The restaurant sector is navigating a challenging period, evidenced by a 7.8% decline in licenced premises.

Businesses are now raising concerns about the lack of response from energy regulatory body Ofgem and are accusing energy suppliers of putting the sector at risk.

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How Did We Get Here?

Despite the decrease in wholesale energy prices at the start of 2023, accusations have arisen that energy providers have failed to pass these savings on to their customers. Many business owners opted for fixed-price tariffs at the peak of prices in 2022, under the impression that this was the best option. Since then, energy expenses have shown a downward trajectory due to diminishing demand. As a result, many companies now find themselves paying excessively high rates for their energy consumption.

Energy regulator Ofgem communicated that they contacted suppliers, urging them to show ‘flexibility’ for businesses bound by these fixed-price arrangements. However, because suppliers procured fuel in advance, the cost savings will take time to trickle down to the end user.

Hotels Struggling to Cope

Opinions on Ofgem’s intervention are divided. Sarah Czarnecki, a hotel director in Yorkshire, published an open letter directed at the regulatory body, advocating for assistance for more than a million businesses across the country stuck in high-cost contracts.

Czarnecki said: “My ask, in writing to you as the industry regulator, is that you listen to the voice of the SME sector and work with energy suppliers to reflect on the declining cost of energy and allow those firms stuck in high tariff contracts to be offered more favourable terms. The notion of a ‘blend and extend’ arrangement has been mooted and would allow SMEs to combine their existing rates with those which reflect current trading reality.

“A number of hospitality businesses have already closed their doors citing the inability to survive in the face of unmanageable energy bills. If no action is taken, we run the risk of losing more crucial businesses which form the bedrock of high streets in every city, town and village in our country.”

Glenn Evans, a hotel owner in North Wales, said: “Bill increases were about 400%, but the out-of-contract rate was even higher. We're looking for the Government to recognise that there was a dysfunctional market and that between them and Ofgem, they allow us access to today's prices. We need hot water for our guests, we need the fridges on, we need the kitchen ventilation and we just can't cut back on parts of the operation."

Pubs and Restaurants at Risk

The cherished pubs of Britain are facing their own set of challenges. Associations representing licenced establishments have pleaded with the Government to step in concerning energy costs and contractual arrangements. The British Beer & Pub Association, UKHospitality, and the British Institute of Innkeeping collectively penned a letter addressed to Amanda Solloway MP, who currently serves as the Minister for Energy Consumers and Affordability. Their appeal is a caution to the Government that this situation could lead to widespread job losses.

Prominent TV chef and pub owner Tom Kerridge has also raised his voice for support of the hospitality industry. As the proprietor of the first two Michelin-starred pub, Kerridge has revealed that he experienced a staggering 600% increase in energy expenses and a £25,000 rise in insurance costs following the most recent COVID-19 lockdown. Alongside this, elevated rents and mortgage rates have been exacerbating the challenges for the hospitality sector.

Kerridge said: “There’s been absolutely no let-up. There hasn't been any positivity or good news in three or four years. Every day feels like you're walking uphill, on glass, barefoot.”

How Can You Save Money on Energy?

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