Retail and hospitality insolvency risks: lessons from Pizza Hut’s financial troubles

Restaurant chain’s dough runs out as struggles reflect broader sector challenges

The UK retail and hospitality sectors continue to face mounting pressures from rising costs and weakening consumer confidence. While the Bank of England has so far avoided a technical recession, growth remains negligible, the UK’s Gross Domestic Product (GDP) – the total value of goods and services produced in a given year, is forecast to rise by just 0.1% in 2025, and inflation is expected to stay above the Bank’s 2% target until late 2027. For operators in the retail and hospitality sectors, these trends lead to tighter margins, weaker cash flow, and continuing financial distress.

This is reflected in the latest figures from the Insolvency Service: there were 2,048 registered company insolvencies in August 2025, up 6% year-on-year, with creditors’ voluntary liquidations (CVLs) continuing to dominate. The government has confirmed that between 1 September 2024 and 31 August 2025, one in every 190 companies on the Companies House effective register entered insolvency, highlighting that this strain has been persistent.
Retail is one of the most exposed sectors to these pressures. The collapse of Claire’s Accessories in August 2025,  which put 2,150 jobs at risk, illustrates how quickly rising and persistently high borrowing costs can destabilise consumer-facing businesses. Although a rescue by Modella Capital saved around 1,000 jobs and 156 stores, 145 sites were closed.

The hospitality sector is also under significant pressure, exemplified by the recent administration of Pizza Hut’s UK franchise operator, DC London Pie Limited. The company’s collapse placed over 1,200 jobs at risk and will result in the closure of 68 dine-in restaurants and 11 delivery sites, demonstrating how sustained inflation, higher salaries and shifting consumer habits continue to put pressure on even well-established brands.

This followed an earlier pre-pack rescue in January 2025, which had preserved over 3,000 jobs across the wider Pizza Hut restaurant network, highlighting that even major restructurings have provided only temporary relief in an increasingly unforgiving market. The latest pre-pack transaction with Yum! Brands saved 64 restaurants and 1,276 roles, but many restaurants will be closed, suggesting the challenges facing the hospitality sector are not short-term, and have led to longer-term restructuring.

Faced with persistent cost inflation, rising energy and food prices, and a reduction in discretionary spending (household expenditure on non-essential goods and leisure), hospitality operators continue to consolidate operations, renegotiate leases, and cut underperforming locations to preserve liquidity.

For restructuring professionals, the Pizza Hut example shows that businesses are running out of room to absorb further shocks. Without meaningful fiscal support, more closures and insolvencies across hospitality and retail appear likely in the months ahead.

Both sectors have faced multiple cost increases in 2025. The rise in employer National Insurance contributions to 15% has placed additional pressure on payroll-heavy operations. Tesco estimates this change will cost £235 million this year, while the 6.7% increase in the National Living Wage –and 16% for 18-20-year-olds – further constrains profitability, particularly as a large portion of their workforce falls within this age group.

As the November Budget approaches, businesses in the retail and hospitality sectors face fiscal restraint and expectations of declining consumer confidence. Chancellor Rachel Reeves has committed not to borrow to fund day-to-day spending, meaning tax rises or frozen thresholds are likely. Analysts from the National Institute of Economic and Social Research warn that “taxes must rise in the autumn” if these fiscal rules are to be met, recommending a “moderate but sustained” programme of increases.

The Bank of England’s August interest rate cut to 4%, the lowest level since mid-2023, has provided limited relief to businesses. With inflation still elevated, policymakers have signalled a cautious approach to further reductions, keeping credit costs high and liquidity tight. Combined with weak consumer sentiment, these factors continue to create a difficult operating climate.

If you are a director of a company which is facing financial difficulties, you should consider taking the following steps, to protect your own personal liability and the company creditors:

• Seek independent advice from a lawyer or licensed insolvency practitioner as soon as you become aware of potential financial difficulties. They can advise you on your options and whether a recovery strategy or insolvency strategy is more appropriate.
• Always keep your director duties in mind. Your actions must comply with these duties and may be scrutinised at a later date by an officeholder if the company enters into a formal insolvency process.
• Only continue trading if it is the best course of action for creditors as a whole and take steps to minimise the loss to creditors.
• Maintain a good and consistent line of communication with all creditors.
• Have regular board meetings to discuss the company’s financial position, and keep detailed and accurate minutes which set out each step taken to improve the creditor’s position or ensure their interests are not prejudiced. Keeping minutes will assist the board should they be required to explain their decision-making later.
• Immediately respond to any demands for payment and legal proceedings served on the company, even if you cannot pay them.
• Ideally every week you should ensure that realistic budgets, forecasts, and management and trading accounts are reviewed.
• Ensure accounts are being properly kept up to date.
• Conduct a full review of the costs and expenditure of the company; consider what non-essential expenditure can be reduced or avoided at an earlier stage.
• Check what insurance cover the company has and review the policy documents carefully, and seek guidance from your broker if necessary.
• If avoiding insolvent liquidation is not an option, you should take immediate advice on instituting a formal insolvency procedure without delay.

If you are concerned about the above impacts or the financial health of your company, please contact Aman Sehgal.