Spain: COVID-19 or the decline of the hotel and catering industry

This pandemic and the restrictions to contain it have achieved what the passing of the years and other crises have failed to do for many century-old and historic bars: their closure.


September brought about a 78% increase in the number of bankruptcies in the hotel and catering industry. Furthermore, this loss cannot be compensated for by entrepreneurial activity, which has not only failed to grow but has also collapsed at a rate of over 28%. This harsh reality, which is reflected in the latest video article “Radar of Competitive Tenders for Creditors and Business Creation” produced by Axesor's Economic Studies Department, does not bode well for the end of the year.


The outbreaks, which continue their relentless climb, and the restrictions that accompany them, are taking their toll on the hotel and catering industry. In addition, the summer season has come to an end and so have many pavement cafés. The fear of contagion by many citizens and the limited capacity and bar closures will take an even greater toll on an industry that represents 6.2% of the GDP (Gross Domestic Product) and will lose nearly 50% of its turnover this year. Therefore, it shouldn't come as a surprise that, as calculated by the hotel and catering industry association, Marcas de Restauración, in 2020 about 90,000 of the approximately 300,000 establishments operating in Spain will be closed. On the fly, this is a third of the total.


In addition to the loss of about 400,000 jobs, these closures have another downside. That of the decline in tax revenue which is directly proportional to the functioning of the real economy. To put it simply, the more people spend, the more the Public Tax Administration collects.  Especially for VAT, which we should remember is the second largest tax in the treasury, amounting to more than 78,300 million euros in 2019 according to the Public Tax Administration. We should also be aware that a good chunk (around 5 billion) of this tax collection comes from what we consume in bars and restaurants.


A hole that is growing, which will stop the collection of social security contributions from the industry, which could exceed 3,000 million euros.


This is a critical scenario in a Spain that finds itself adrift due to the health and economic crisis caused by the coronavirus and political instability. A country struggling to keep its head above water awaiting the arrival of the European Recovery Fund's lifeline. Digital, sustainable and green funds, linked to structural reforms and projects that imply an improvement in competitiveness and allow both the recovery of lost employment and the creation of new jobs that represent the starting point for ending the Spanish labour market's historic dichotomy.


This means that big companies will have to carry the burden of the small ones, including those in the hotel and catering industry. A role that would appear to be simpler in the area of sustainability and green economy.


All signs indicate that the future landscape will be dominated by big restaurant chains. The fact is that at least 63% of the entrepreneurs of the companies in the first group predict that they will recover pre-crisis activity in 2022 and another 11% - more optimistic - predict that it will be next year.


Therefore, in order to keep our “long-lasting bars” - the hallmark of Spain - alive, the government must act swiftly with actions such as temporarily applying a highly reduced VAT on hotel and catering products. As a result, and according to a study by Competur, next year up to 4,320 million euros of expenditure will be injected into the hotel and catering businesses, reducing by four points the fall in expenditure predicted for 2021 and bringing it closer to 90,400 million euros.  Having said that, all that remains is to cross our fingers and wait for the Government and the other Administrations to really start singing “Let's save the hotel and catering industry”.


Looking beyond the data provided by this key sector for growth and the dynamisation of the real economy, the data is also not indicative of a rosy future, but rather one of greyish tones. Despite the fact that September was the second month to close on a positive note so far in 2020, entrepreneurship fell by 23% during the first nine months of the year compared to the same period last year. This data is also accompanied by a new drop in initial investment. Until September, entrepreneurs paid 3,440 million euros to start their activity, 18% less than in the same period in 2019. The above figures also include an increase of more than 20% in the volume of capital subscribed in the ninth month of the year.


Although the number of bankruptcies continues to be a problem - as a result of the halt in the Commercial Registries and the measures adopted by the Government to alleviate the loss of companies - the reality is that the number is decreasing. Thus, compared to the decrease of more than 87% and 63% of the months of April and May, in September the figure was 18.40%.


Considering all the above, we must take a deep breath and prepare for a cold and barren winter where we will all have to row together.



Author: Axesor's Economic Studies Department


Source: https://www.axesor.es/blog/post/2020/10/15/covid-19-ocaso-hosteleria


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