Is the Out of Home market in the aftermath of Covid?
In this article, we will take a look at the post-Covid landscape of the European Out of Home market, focusing on varying closure rates in different countries and the factors influencing these trends.
In the ever-changing Out of Home landscape, there has been a significant transformation in the number of food and beverage locations in October. Reports about the number of closures in the European market have been regularly featured in the news. In this article, we dive deeper into this topic by providing an overview of the current market situation in various European markets. Using our extensive Out of Home database, Data Outlet, filled with more than 4 million locations, we can paint a comprehensive picture of the current market situation. This picture leads to interesting insights into developments and trends. With an average closure rate of approximately 30% per year, it is more crucial than ever to distinguish between typical market behaviour and a clear deviation from the status quo. We analyse the data from the past few months to determine the average closure rate within the food and beverage segment for five major European countries. Additionally, we outline potential factors for this change.
Highest closure rate is in the Netherlands
The Netherlands, with over 45,000 food and beverage establishments, is one of the most densely populated markets in Europe. The market, known for its innovation and terrace culture, is currently experiencing one of the largest declines in the number of outlets in Europe. In October, the closure rates for food and beverage locations quadrupled compared to previous months in the same year. The Dutch Out of Home sector is in particularly affected when it comes to bars, pubs, and restaurants, in which the number of closures has increased sixfold compared to the average of previous months. Fast food locations, on the other hand, have been relatively less impacted, with closure rates approximately one and a half times higher.
The Dutch tax authority recently sent more than 27,000 letters to business owners in the Netherlands, requiring them to repay their Covid-loans. Many of these entrepreneurs are active in the Out of Home sector. In the coming months, inflation is also expected to have an impact on reduced consumer spending. Therefore, we anticipate that this trend will continue in the coming months.
More closures expected in the future for Germany
Germany exhibits a similar trend to the Netherlands, with closure rates three times higher for food and beverage locations when compared to previous months in the same year. Estimates in Germany indicate that approximately 12% of hospitality locations may soon be threatened with closure. The expectation is that this development will not change in the short term. During Covid, Germany reduced the VAT rate from 19% to 7% with an expected end at the end of 2023, which will then increase raising consumer prices. The significant increase in closures reflects the current challenges facing the German Out of Home market. It is also expected that the increasing closure rate will not end quickly in the coming months due to inflation, tax regulations, and reduced consumer spending.
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The United Kingdom and Belgium experience milder effects
While Germany and the Netherlands show a steep increase, this is not the case in all European markets. The United Kingdom and Belgium, for example, have experienced milder effects, with closure rates fluctuating around 1.2 times higher than the average of previous months. This could suggest a different approach to the measures and challenges facing the Out of Home market in these countries.
In France, the peak seems to be over
In France, the situation in the food and beverage segment appears to have stabilized in the third quarter of the year after a turbulent second quarter in which closure rates doubled compared to the previous quarter. In October, we saw the number of closures return to the level of the first quarter of this year.
How can we explain this?
The sudden increase in closures in October, especially in the Netherlands, calls for a closer analysis of possible causes. While various factors may be at play, we can see a correlation between the number of closures and critical financial deadlines, such as outstanding Covid loans and adjusted tax rules. Furthermore, there is also a strong connection between inflation and consumer behaviour, which are under significant pressure. The need to repay loans, combined with impending tax deadlines, has placed significant financial pressure on these businesses. Due to these significantly higher costs, many bars, cafes, and restaurants are unable to keep their doors open.
Interestingly, businesses in the fast-food sector have been relatively less affected by this financial pressure. This is likely because this sector quickly shifted to home delivery during Covid, allowing them to maintain higher revenues for a longer period than other Out of Home locations.
In summary, the development of the number of food and beverage establishments by country in 2023 is characterized by varying closure rates, particularly in October. It shows a clear trend break. While countries like the Netherlands and Germany are experiencing a significantly heavier impact, the United Kingdom and Belgium have demonstrated some resilience. In France, the situation appears to be recovering reasonably quickly. A key factor contributing to these differences seems to be the financial pressure on hospitality businesses caused by Covid emergency loans and changing tax rules. The Out of Home market is influenced by a combination of economic factors, consumer behaviour, and government policies. As we move towards the future, the resilience of Out of Home locations will be further tested. However, those that survive will ultimately reap the benefits of reduced competition resulting in higher volumes per location. It is therefore essential for manufacturers to stay up to date on the latest developments to meet the increasing volume demand from locations.