During the CoVid crisis, the UK hospitality sector struggled. Lockdowns meant that restaurants, cafes, and bars were restricted to offering takeaways. Hotels were restricted to putting up essential workers, being used as overflow residential homes, asylum seeker accommodation, helping the homeless to stay off the streets or as quarantine centres.
Despite this, many managed to stay open and appeared to be making a reasonably good recovery. To the point where, in September 2021, according to the Lloyds Bank UK Sector Tracker report, the hospitality sector outpaced all others in terms of growth.
That situation has now been reversed. For September 2022, the Lloyds bank report shows that restaurants, hotels, pubs, and leisure facilities, have seen their businesses shrink by an average of 36.3%. The worst level of shrinkage since February 2021, which is startling when you consider that reporting period included a full lockdown.
During September 2022 alone, demand from customers fell by 38.5% year on year. That is the fourth month in a row that pubs, bars, restaurants, hotels, clubs, and other leisure facilities have had fewer customers than the year before.
Worse, the underlying cause of this fall in demand is the fact that people in the UK are actively cutting back on their discretionary spending. This is not surprising given the fact that a survey carried out by KPMG in April 2022 showed that UK consumers were planning to spend less.
According to that survey, UK households were expecting their monthly bills to go up by an average of £82.80. As a result, to cover those costs they were planning to cut back. The majority were planning to do this by spending less on clothing and eating out.
However, it is not all bad news. That same survey showed that most people were being cautious rather than cutting spending on travel, leisure and eating out over the long term. Most consumers were taking a break from spending to ensure they could cover their bills and save enough for special days out, celebrations and a few days away. The majority were putting money away to pay for a holiday in 2023.
The travel, leisure and hospitality sectors see this as a glimmer of hope. They believe that people will still find the money to go out or travel for special occasions and during traditional holidays. So, over time, the level of business they have should begin to recover. Although, it is highly unlikely to return to pre-pandemic levels. The uplift in turnover that was seen during the second half of 2021 is seen by many as a bonus. A welcome blip that was largely due to pent-up demand and the fact that those who were on ?? had spent a lot less during the pandemic. Meaning that they had extra spare cash to spend once restrictions were lifted.
Currently, the hospitality sector is taking stock and reassessing its business models and the way they operate. Given that the KPMG survey and some other pieces of research show that value for money is the main purchasing consideration, which is where efforts are focused. Firms that offer value for money are the ones that will stay in business despite the recession.
Finding efficiencies, where they can, reduces overheads. Savings that can be passed onto consumers. For example, most bars, cafes, and restaurants are now utilizing cost-effective digital signage, which means they no longer have to pay for printed menus. These digital screens can also be used to display promotions and advertise events. So, the business does not have to pay for posters either.
Deceptively minor changes are resulting in substantial savings for firms, and some are helping them to meet the other big challenge – not being able to hire enough staff. Something that is leading to restaurants having to restrict the number of customers they serve. Using digital menus opens up the potential for customers to place their own orders using kiosks rather than waiting for serving staff to come to the table. In the process, reducing the overall wage bill.
More meal deals are on offer. For example, in Meadowhall Shopping Centre in Sheffield, several restaurants are giving meals away during the half-term holiday period. In other areas of the UK, some stores and restaurants are charging just £1 for a child´s meal.
Despite their efforts, most in the sector are resigned to the fact that while the recession lasts their businesses are not likely to grow. As a result, there is likely to be some rationalisation. Therefore, it is anticipated that chains will start to close their less profitable outlets.
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