Europe’s hospitality sector faces survival test in second lockdown

Mokrane Embarek agreed to buy L’Auberge Normande, a restaurant and hotel in the Norman town of Saint-Lô, shortly before the pandemic erupted.

Now, with the French government announcing a new one-month national lockdown in an attempt to stop Covid-19 infections spiralling even higher as winter looms, the 71-year-old could be forgiven a severe case of buyer’s remorse.

Since taking control of the business in August, “there has been nothing. It’s just money going out and nothing coming in”, he said.

Mr Embarek is far from alone. Europe’s hospitality industry has been pummelled by a virus that feeds on its lifeblood: people socialising. Although the new restrictions introduced in France this week extend to non-essential retailers, German chancellor Angela Merkel has zeroed in on pubs and restaurants, which will have to shut for the month of November. Hotels will also face drastic restrictions on how they operate.

The second forced closure of the sector in less than six months has unleashed a mix of anger, fear and frustration in the eurozone’s two largest economies.

“For many restaurants and bars, the coming four weeks will be the last straw that breaks the camel’s back,” warned Marcus Schwenke, managing director of Germany’s wholesale trade association Foodservice.

Ms Merkel and Emmanuel Macron, the French president, have each pledged financial support to avert a wave of insolvencies. The French government is expected to strengthen existing measures introduced earlier in the pandemic as well as roll out new measures, including rent relief. The overall cost of supporting businesses affected by the lockdown is expected to be €15bn a month, the government estimates.

Berlin, meanwhile, has earmarked up to €10bn in new aid, with businesses receiving compensation equivalent to 75 per cent of the revenues they generated in November last year.

But for Alexander Manek, the owner of three popular pubs in the city of Cologne in northern German, the money needs to arrive quickly.

“We’re really up against a wall,” said Mr Manek, who will furlough all of his 100 employees starting next week. “Without additional help from the government, the lights would go out quickly.”

German chancellor Angela Merkel has zeroed in on pubs and restaurants, which will have to shut for the month of November © Leonhard Foeger/Reuters

The timing, he says, could barely be worse. “For us, November and December are normally the busiest months of the year,” he lamented, pointing to the start of the country’s carnival season on November 11, a period typically followed by a flurry of private and corporate Christmas parties.

Even before this week’s measures, customers had begun to cancel bookings in the middle of October as officials started warning about a steep rise in infections.

“For us, this is just catastrophe. We normally generate a third of our annual revenue in the final two months of the year,” Mr Manek said.

Ms Merkel this week insisted that the government had no choice but to lock down a hospitality industry that employs 2.5m people. In France, the sector, alongside travel, cultural and sporting activities, accounted for 9 per cent of French gross domestic product and employed 3.3m people at the end of 2019, according to French statistical agency Insee.

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As well as alarm, there was some scepticism that authorities had picked the right targets to contain the virus, which is setting new records for daily cases in both Germany and France.

Geoffroy Roux de Bézieux, who heads France’s employer federation Medef, argued that the virus had spread in private settings, but it was businesses which would bear the cost.

“We cannot afford to lock down and open up every three months,” Mr Roux de Bezieux tweeted. “The virus is here for a long time. We must imagine now a way of living and working with it.”

It was a sentiment echoed by Oliver Winter, the founder and managing director of a&o Hostels, a German chain offering budget accommodation for young people, who lambasted the restrictions as “a political fig leaf” that will do little, if anything, to curb infections.

Mr Winter expects occupancy at a&o Hostels across Germany to fall from some 40 per cent earlier in the autumn to just 5 per cent in November.

“We have been burning money since the start of the pandemic,” he cautioned, adding that thanks to a mix of additional credit lines, concessions from landlords and cost cuts the group is equipped with the financial resources to survive until the middle of next year.

Olaf Scholz, Germany’s finance minister, said that the package of support would “have a massive direct effect and which we can set up quickly and in an unbureaucratic way, with the EU’s consent”.

But that provided little reassurance for Robert Mangold, managing director of Tiger Palmen Gruppe, a Frankfurt-based hospitality company.

“The money needs to arrive within just three to four weeks to avoid a string of insolvencies,” said Mr Mangold, adding that many companies struggled to access the government aid during the first lockdown as the application process was overly complicated and restrictive.

Back in Saint-Lô, the town in the French region of Normandy where Mr Embarek bought his restaurant, Perle Trouinard is dealing with lunchtime customers at nearby Le Central bar and restaurant. One couple ask what will happen on Friday, when the restrictions come into force: “Will you still be able to do takeaway, at least?”

“We have no idea,” Ms Trouinard responds as she notes down the order. “But I can tell you this, we’ll keep doing our best right up to the end.”

Additional reporting by Leila Abboud in Paris and Guy Chazan in Berlin

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