‘It’s never going to get worse than this’ was a phrase many in the hospitality sector muttered following the unprecedented economic turmoil that the Covid-19 pandemic brought to the sector.
Famous last words, eh? Here we are now facing an energy crisis so severe that many are saying it could be more damaging to the sector than the global pandemic.
Reports that energy prices have skyrocketed are widespread, with many citing costs have increased by 300% to 400%. Restaurants and hospitality venues are energy-hungry businesses and UK Hospitality has predicted that we could see 8,000 to 10,000 business failures without urgent government action. It all sounds so familiar and fatiguing to a sector running out of steam, having faced continuous challenges since the start of the pandemic.
The staffing crisis coming out of the pandemic was huge and continues to present issues and increased costs to businesses. Combine this with rising inflation and margins are squeezed. Numerous heatwaves and train strikes – which are looking to continue into the autumn – have kept people out of our city centres and all of their restaurants and bars, impacting on trade.
In addition to this, after losing two consecutive periods of Christmas trading, where many operators take most of their annual sales, the sector is understandably hurting and we are hearing reports from best-in-class operators that their business models are no longer viable, casting a shadow of concern going into the autumn.
Being an optimist – as is the nature of agency – it is not all doom and gloom, and following on from a hard pandemic, people are not prepared to quit socialising and sales have remained buoyant over the summer period. The best venues have been booked out and strong trading has been reported throughout the summer, with a rise in staycations due to travel chaos and good weather. People are continuing to crave opulent experiences, and while overall visits to hospitality venues are reducing, many are reporting an increase in the spend per head.
The impact of the cost-of-living crisis is not yet realised and consumers will undoubtedly change their behaviour. We do not expect them to give up meals out and drinks with friends, but instead expect them to become more discerning, seeking value and excellent hospitality. Once again, this will generate a survival-of-the-fittest backdrop and the weakest will not survive.
We do expect to see properties returned to landlords, but not on the scale that UK Hospitality is predicting; these doomsday figures are intended to urge the government to act. While Liz Truss has announced an energy cap for businesses now, this is only in place for six months. What operators need to know is what happens next.
A quick VAT cut to 12.5% and a business rates holiday will give operators much-needed breathing space to absorb additional costs without passing these onto customers and thus contributing to further inflation. Until we hear from our new chancellor in terms of additional relief, the sector will remain cautious, and expansions will slow, particularly in secondary areas that are perceived to be risky. A flight to prime, as we always see in difficult times, is likely.
Hospitality has been a hugely integral part of the post-pandemic recovery of our centres. Many of us moved our retail shopping online, but it was the vibrancy of our beloved restaurants and bars that has lured us back into our centres time and time again.
Culture and food-and-beverage are closely intertwined and these experiences cannot be replicated at home or on a screen, which indicates the strong future of our sector. Landlords who have recognised the importance of the role of hospitality and its magnetism in inciting people to travel to their holdings – such as our clients Shaftesbury, The Crown Estate and Borough Market – have been and will continue to be the winners.
While hospitality comes with baggage at present, this situation is temporary and landlords need to understand the issues operators are facing. As they have done before, they must work with them to find solutions together, and in doing so keep the hearts of our city centres beating.
Camilla Topham is co-founder of hospitality property consultancy Distrkt
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