The Impact of Quarantine on the Ukrainian HoReCa Industry
Quarantine restrictions aimed at tackling the COVID-19 pandemic have affected various sectors of the economy in different ways.
The Hotel/Restaurant/Café industry is one of the areas that has suffered most from the ongoing quarantine. Since March 2020, catering and hotel businesses have been under pressure from the toughest quarantine restrictions up to the ban in the first months and during periods of increased morbidity.
Even when the epidemiological situation was stable, catering establishments could not operate normally due to the obligation to comply with government quarantine regulations.
These limitations were mainly incompatible with the ability of businesses to survive:
- visitors should be served only in the open in spring and summer;
- seating restrictions of no more than 2-4 people at one table at a distance of no less than 1.5-2 meters between tables;
- visitors should use personal protective equipment apart from mealtime;
- limited working hours;
- occupancy limited to 50% of seats;
- total ban on serving visitors inside establishments in spring, on weekends in November, and for more than half of January (the most profitable periods for restaurants in winter).
This has led to the fact that the HoReCa industry in Ukraine saw 2021 without many well-known restaurants, cafés, and even restaurant chains. Approximately 15% of all catering establishments closed or ended up broke. The remaining food establishments lost at least 50% of their income in 2020.
Business owners name the following reasons for such a disappointing situation:
- Strict quarantine restrictions and banning of the main activity imposed for too long covered the most profitable periods for businesses. Permitted delivery and takeaway formats could not cover even half of the costs. It allowed establishments solely to show loyalty to their customers and to provide at least part of the staff with jobs.
- The general decline in the solvency of Ukrainians due to quarantine restrictions led to a significant decrease in the ability to visit catering establishments and hotels.
- Additional costs needed to ensure compliance with quarantine requirements and constant legislative changes of the regime and format of activities due to quarantine restrictions.
- Lack of financial support from the state, for example, in the form of credit vacations. Instead, HoReCa suffered from constant inspections by regulatory authorities, which imposed significant fines.
What representatives of the HoReCa industry in Ukraine remained afloat, and how did they manage to do it? These are establishments, whose owners had alternative sources of income to pay rent, suppliers’ bills, staff salaries, and so on. They managed to adapt to the new living conditions in quarantine very quickly:
- constantly reviewing their business strategy,
- introducing new formats,
- creating unique products and offers,
- making full use of the minimum opportunities left by the government.
One of the key factors allowing them to stay alive and still survive was their active cooperation with legal advisers, who provided certain measures to reduce costs:
- Negotiations with landlords and suppliers on new working conditions,
- Reduced rent and payment vacations for the period of quarantine restrictions put in writing
- Timely and legal reorganization of staff;
- Keeping owners posted about recent changes in quarantine requirements (often enacted with various legal conflicts) and the powers of regulatory authorities;
- Adapting businesses to new conditions.
Despite all these difficulties, the HoReCa industry in Ukraine continues to grow. Many new catering establishments and hotels opened their doors in 2020. Though most of their owners planned to start their business before the beginning of quarantine, their space and formats allowed them to comply with quarantine regulations without losing potential customers.
Fast food became one of the most adaptive business areas, actively benefiting from takeaway and delivery options. Therefore, the development of the catering industry in Ukraine is currently shifting from elite expensive restaurants to simple mobile catering establishments accessible to a larger audience.
Of course, if the quarantine restrictions are eased over time, the number of new restaurants will start growing again, as it is a respectable business. However, this area will never be the same as before. Investors will definitely prefer those formats of institutions that will be able to maintain profitability in terms of various limits and the fall in the number of diners. The most resilient market players can currently achieve this through constant communication with their customers on social networks, active cooperation between establishments offering various products, such as restaurants and bakeries, finding friendly delivery services, as well as introducing their own efficient delivery and takeaway service.
By Maksym Kurochko, Managing Partner of MK Legal Service