In January 2020, we partnered with 3GEM to survey over 300 middle-market consumer business leaders in the retail, travel and tourism, leisure and hospitality, and hotels and accommodation sectors. Of those responses, 30 per cent came from the UK leisure and hospitality sector.
Leisure and hospitality sector headlines
|82 per cent of leisure and hospitality businesses feel positive about their future prospects in 2020.|
|Businesses expect a 45 per cent increase in revenue from the food delivery market by 2025.|
|Reducing costs is the highest priority for the leisure and hospitality sector at 49 per cent.|
|86 per cent of businesses have reduced their rent costs, are in the process of doing so, or plan to do so.|
|At 39 per cent, increasing internal efficiencies is the strategy most likely to be used to reduce the impact of National Minimum Wage and National Living Wage increases.|
|Uniquely to leisure and hospitality, dietary requirements is the consumer trend most likely to impact businesses, alongside environmental concerns (both at 35 per cent).|
Growth through delivery
72 per cent of respondents expect the delivery market to grow and 45 per cent expect to increase sales from delivery over the next two years. While there have been challenges adapting traditional restaurant models to accommodate delivery, the need to reach more customers to cover the ever-increasing cost of operating bricks and mortar sites continues.
More operators are entering the space, with Leon opening its first ‘dark kitchen’ and Greggs recently launching with Just Eat. That leaves 28 per cent of respondents who see delivery plateauing or declining. Top line growth through delivery can come at the cost of operating margin and potentially cannibalise dine-in custom. With some operators having already exited dark kitchens due to brand damage and low profitability, it’s clear that delivery is not right for all.
Reducing costs is a priority
In a competitive industry hit by rising costs in recent years, it’s no surprise that 49 per cent of leisure and hospitality respondents see cost-cutting as their highest priority. A clear focus for operators is to reduce site rental costs, and 86 per cent have either reduced their rental costs or intend to do so in the future.
Many in the industry predicted that 2020 would see landlords fighting back against businesses seeking rent reductions, and we have seen evidence of Company Voluntary Arrangements (CVAs) failing due to lack of creditor support. What’s clear from our survey is that there will be more attempts to negotiate rent rolls as businesses continue to struggle with the burden of increasing property and staff costs.
Staff costs – risk and reward
The increases to the National Minimum Wage and National Living Wage will disproportionally impact the leisure and hospitality sector. 87 per cent of respondents said they’ve had difficulty recruiting in the last 12 months and new immigration laws will further shrink the pool of talent. Intense competition means operators can’t compromise their offering by reducing headcount or passing on the additional cost to customers.
Unsurprisingly, our respondents are focusing on mitigating the impact of wage increases on their businesses, with the main areas of focus being automation (36 per cent) and improved internal efficiency (39 per cent). Whilst wage increases have the potential to reduce margins for operators, there is hope that a lifting of the minimum wage across the country, coupled with increased consumer confidence, will lead to a loosening of the purse strings injecting some much-needed top line sales growth.
Positive outlook, but challenges ahead
Despite the challenges facing the sector over the last few years, operators remain optimistic with 82 per cent of respondents feeling positive about their future prospects in 2020. Like-for-likes have been growing in recent months and with the initial Brexit phase complete there is hope of a resurgence in consumer spending. However, the leisure and hospitality sector faces some specific challenges to keep up with changing habits and demographics, with 35 per cent seeing evolving dietary requirements as the trend most likely to impact business, and 35 per cent seeing environmental concerns as their biggest challenge.
These youth-driven trends are well established but also fast moving, and given the high level of competition, operators that do not keep pace with changing consumer demands will find they lose out to more adaptable concepts.
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