Over 15,000 German Restaurants Face Imminent Threat of Bankruptcy

A recent analysis by information service provider Crif has revealed that more than 15,000 restaurants, pubs, snack bars, and cafés across Germany are currently teetering on the brink of insolvency. This alarming statistic constitutes 12.6 percent of the companies scrutinized, marking a significant increase from the 10.7 percent recorded in January 2020 before the onset of the COVID-19 pandemic, equating to 12,662 companies.

The plight of restaurateurs in Berlin is particularly pronounced, with 16.5 percent of businesses in the capital facing the risk of insolvency. In contrast, Bavaria and Rhineland-Palatinate have the lowest insolvency risk at 10.5 percent.

Despite the passage of time since the initial impact of the pandemic, Germany's gastronomic sector has yet to recover fully. According to the Federal Statistical Office, September 2023 saw price-adjusted sales for companies in the sector dip by 12.6 percent compared to the same month in 2019. Bars have been especially hard-hit, experiencing a staggering 34.5 percent decline in revenue from drinks over the past four years. Meanwhile, restaurants, pubs, and cafes faced an 8.1 percent gap in revenue.

Adding to the industry's woes, the decline in sales has been mirrored by a reduction in the workforce. In September, the number of employees was 4.0 percent higher than the previous year but remained 6.7 percent below the pre-crisis levels of 2019.

In a challenging labor market, companies in the gastronomic sector struggle to attract staff with appealing remuneration. Notably, in October 2022, half of all catering employees worked for low wages. This contrasts starkly with the overall economy, where only 15.2 percent of jobs paid hourly wages of 12.76 euros or less at that time.

Compounding the industry's challenges is the looming return to the standard 19 percent value-added tax (VAT) rate for food in restaurants, set to take effect from 2024. The current reduced VAT rate of seven percent for the catering sector, implemented as a response to various crises, is set to expire at the end of this year. Analysts, including Crif, express concerns that this tax hike could precipitate further bankruptcies within the already struggling industry.

Frank Schlein, Managing Director of Crif Germany, anticipates a continued rise in bankruptcies in the catering sector in the coming year. Crif's forecast for 2023 predicts 1,600 bankruptcies in the industry, reflecting a substantial 36.5 percent increase compared to 2022.