Dave Gosling – Hospitality & Leisure sector expert
Work hard, play hard. Judging by the current healthy state of the UK hospitality & leisure sector, this seems to be a motto that the population is embracing. More people are eating out, with the strongest growth being in ‘grab and go’ dining. Brand loyalty is increasing, resulting in the confident expansion of certain chains. And budget hotel chains have experienced dramatic growth, especially in London.
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A guide for restaurant entrepreneurs
Good news is hard to come by in the UK’s restaurant sector at the moment, but here’s some – consumers are spending more on leisure and restaurants than ever before.
This situation begs a number of questions. With consumer spending in these areas on the rise, why are so many restaurant businesses in the UK struggling? And what can they do to avoid this?
Key challenges of the Hospitality and Leisure sector
Although conditions for pubs are likely to remain challenging, the worst seems to be over, with a predicted growth of 2% pa to reach £20 billion by 2020, with a similar growth in profitability. Declining beer consumption and competition from the on-trade sector are the downsides but the removal of the beer tie for tenanted publicans, together with increased food, wine and premium beer sales are expected to offset this.
This is the only sub-sector that is expected to continue struggling, with revenues down 1% pa during the next five years. Competition from alternative late-night venues is expected to force inefficient operators to exit the sector and relatively high youth unemployment continues to curb spending.
The sector continues to face skills shortages, although the influx of migrant EU workers has helped somewhat. The increase in the national minimum wage is expected to push up costs and reduce margins for the sector.
There is more focus on the use of technology, for example, online booking, mobile apps, customer database management and social media.
UK hotel sector turnover is expected to increase by 2.4% pa over the next five years, bolstered by robust growth in business and tourist travel, fuelled, partly, by a rise in retirement-age travellers. However, it is a highly competitive market, so room rate increases are tight and the continued growth of larger chains will cause smaller operators to suffer. All operators are also being squeezed by the impact of online booking providers and the rise in popularity among younger travellers for concepts like Airbnb and HomeAway.
Rent increases and increased prices for food and drink are putting pressure on margins. Control of energy usage and supply chain costs combined with management of the impact of commodity prices are key to ensuring competitiveness.
These are rising and satisfaction levels are falling, perhaps due partly to the influence of social media/Trip Advisor.
Despite interest rates being low, there are still issues with credit supply, which are preventing operators from undertaking certain projects like acquisitions, rebranding and refurbishments.