‘It’s never going to get worse than this’ was a phrase many in hospitality muttered following the unprecedented economic turmoil that the Covid-19 pandemic brought to the sector.
Famous last words, eh? We now face an energy crisis so severe that many say it could be more damaging to the sector than the pandemic.
Reports that energy prices have skyrocketed are widespread, with many citing 300% to 400% cost rises. Restaurants and hospitality venues are energy-hungry businesses and UKHospitality 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 Covid.
The staffing crisis coming out of the pandemic was huge and still presents issues and increased costs to businesses. Combine this with rising inflation and margins are squeezed. The summer heatwave and numerous train strikes have kept people out of our city centres and all of their restaurants and bars, affecting trade.
In addition, 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.
But it is not all doom and gloom. 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 summer, with a rise in staycations due to travel chaos and good weather. People still crave opulent experiences, and while 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 are sure to 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.
What next?
We do expect to see properties returned to landlords, but not on the scale UKHospitality is predicting; these doomsday figures are intended to urge the government to act. While Liz Truss has announced an energy cap for businesses, this is only 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 on to customers and thus contributing to further inflation. Until we hear from the chancellor about 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 shopping online, but it is the vibrancy of our restaurants and bars that has lured us back into our centres time and time again.
Culture and food and beverage are intertwined and these experiences cannot be replicated at home or on a screen. 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 face. They must work with them to find solutions, and to keep the hearts of our city centres beating.
Camilla Topham is co-founder of hospitality consultancy Distrkt
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