Leisure and hospitality industry outlook 2025

What is the future for UK leisure and hospitality in 2025

2024 proved to be a challenging year for the UK leisure and hospitality industry, as operators grappled with increased staffing and operating costs, as well as cautious consumer spending. With further cost pressures expected following the measures announced in the Autumn Budget 2024, businesses are bracing themselves for further headwinds in 2025.  

Like-for-like sales have only occasionally outpaced inflation in 2024, making meaningful growth difficult for many businesses. In the capital, London's like-for-like sales have shown a slightly better performance compared to the rest of the nation, driven by higher tourist footfall and a growing return to the office. However, even London-based operators have not been immune to the broader economic pressures affecting the industry.

The impact of shifting consumer priorities

As household financial priorities shift, discretionary spending on dining and drinking out is often among the first areas to be cut. According to our latest Consumer Outlook report, 35% of consumers intend to cut back on their dining and drinking out expenses this year. We saw a similar intention to reduce spending in last year's survey. Growth in the industry remained subdued throughout 2024, therefore this consistent pattern could be an early indicator that consumer spending will stay constrained well into 2025.

46% of consumers surveyed indicated they will cut back on spending on dining out by reducing the frequency of their visits, up from 42% last year. This increase highlights a shift in consumer behaviour, where economic pressures are not the only factor at play. Many consumers are becoming more selective with their spending or choosing not to spend at all, allocating their money elsewhere. As interest rates decrease, reduced incentives to save could further fuel spending across the sector.

Unlocking consumer spending in 2025

Despite ongoing consumer caution, businesses in the leisure and hospitality sector still have substantial opportunities to tap into spending. The key will be creating genuine value that resonates with target markets while boosting profitability. So, how can businesses encourage this spending? 

Promotions and special offers will remain central to driving sales in 2025. Our research shows that 29% of consumers will actively seek out discounts or offers for dining or drinking out, a trend that rises to 32% among families.  

In addition to promotions, loyalty schemes are becoming increasingly significant in driving customer retention and repeat visits. The rise of such schemes in 2024, with many businesses leveraging technology to offer personalised rewards, has set the stage for their prominence in 2025.  

Loyalty schemes not only provide value to customers but also allow operators to gather valuable data on preferences and spending habits, enabling more tailored offers and experiences. When combined with diverse offerings and targeted promotions, loyalty programmes can play a pivotal role in fostering long-term customer relationships and boosting revenue. 

Beyond promotions, many businesses will need to diversify both their revenue streams and their offerings. Operators are increasingly exploring new avenues such as virtual events, branded merchandise, and subscription services like meal kits or wine clubs.  

Additionally, diversity in offerings is gaining traction, with restaurants opening for breakfasts, nightclubs hosting events during the day, pubs expanding into accommodation and food services, and venues repurposing floorspace for competitive socialising concepts. This diversification will be crucial for staying resilient in the face of shifting consumer habits. 

Social media will also remain a powerful marketing tool, with platforms like TikTok and Instagram driving trends and bookings. In 2025, businesses that leverage storytelling, user-generated content, and influencer collaborations will capture the attention of their target audiences. 

These strategies can help operators navigate a fluctuating market. While promotions may not be the deciding factor for every consumer, they hold significant influence over a large portion of the market. Hospitality businesses should see this as a strategic opportunity to drive both customer loyalty and profitability. 

Restaurants set to win over the new generation of diners 

Our research indicates that restaurants have overtaken pubs and bars to become the most popular type of venue to visit in 2025, particularly among Gen Z and Millennials. This shift is driven by their appetite for immersive, social, and value-driven dining experiences, with less focus on alcohol-dominated activities. 

For operators, this presents a prime opportunity to innovate. Restaurants that can create standout experiences, such as immersive dining concepts or themed venues, are likely to attract this demographic. For instance, venues like Sketch in London, with its combination of fine dining, creative cocktail menu and unique setting, or Dishoom’s retro-inspired Bombay cafés, offer the kind of atmosphere that resonates with younger audiences. We also expect to see more pub and bar operators looking to food as an opportunity to diversify their offerings and attract a younger clientele. 

The rise of sustainable dining options 

As awareness of health and sustainability continues to grow, consumers are increasingly favouring environmentally conscious dining choices, and this trend shows no signs of slowing down in 2025. 

Our research reveals a significant rise in consumer willingness to pay a premium for dining experiences that highlight locally sourced (not imported) ingredients, increasing from 42% in 2023 to 49% in 2024.  

This upward trend reflects a broader consumer preference for sustainability and a desire to support local communities. For the hospitality industry, this represents a valuable opportunity to differentiate offerings by embracing and highlighting local sourcing as a key part of their value proposition. 

Restaurants that champion locally sourced ingredients, plant-based options, and minimal food waste are poised to stand out in 2025. Brands like Mildreds, a plant-based restaurant chain, and The Pig, known for its local menus, demonstrate how operators can align with these values while delivering exceptional dining experiences. Pizza Pilgrims further showcases its commitment to sustainability by achieving B-Corp status in March 2024, while Greggs aims to power its operations with 100% renewable energy as part of its sustainability goals this year. 

As real wages continue to increase, sustainability will start to influence consumer behaviour further. Demonstrating sustainable practices could give operators a competitive edge.  

Many businesses are already embracing sustainability by buying local produce, reducing waste, and minimising their environmental footprint. However, these efforts can often go unnoticed. To attract eco-conscious Millennial and Gen Z customers, operators could actively highlight their sustainable practices through marketing, menu design, and in-venue communications. Transparency and storytelling, such as showcasing partnerships with local suppliers or highlighting eco-friendly initiatives, can resonate strongly with these demographics and help build brand loyalty. 

Goldrush of consolidation in 2025

Inflation and operational pressures from 2023 have lingered, and businesses will need to contend with higher staff costs and operating expenses following the Autumn Budget, together with additional compliance changes under the Employment Rights Bill. For vulnerable businesses, this could well be a step too far and we expect to see an uptick in insolvencies across the industry next year as a result. 

Insolvencies in the sector were down 13% to 327 in November 2024 when compared to 375 in November 2023. However, insolvencies in the sector jumped 29% month-on-month from 253 (October 2024) to 327 (November 2024). This is the first period following Rachel Reeve’s Budget and could be an early warning sign for the sector. 

Operators are braced for more challenges in the year ahead with national insurance and business rate rises set to hit from April alongside increases to national minimum wage, all of which will fall disproportionately on the hospitality sector. 

This backdrop will create consolidation opportunities for operators looking to strengthen their market position through strategic acquisitions and bring efficiencies in response to the measures announced in the budget. We are therefore likely to see a more active environment for mergers and acquisitions (M&A) in the leisure and hospitality industry, though caution will persist. As further pressure is applied, distress deals will drive a further wave of consolidation in 2025.

The rise in deal activity will be fueled by various drivers, including the need for debt refinancing, strategic consolidation efforts, the pursuit of returns by private equity firms, and a fall in interest rates, which will make borrowing cheaper and is expected to drive M&A activity in 2025. 

The market is seeing examples of several operators looking to bolster their positions through acquisitions or external investment, including Azzurri Group buying burrito brand Boojum, The Restaurant Group's sale to private equity firm Apollo for £701m, and Sixth Street’s acquisition of Wingstop UK for £400m. 

While leisure and hospitality deal volumes have outperformed other consumer subsectors, declining only 3% y/y, the sector continues to face economic challenges. 

What is clear is that 2025 will see very different fortunes for operators. Those unable to absorb or pass on the significant rises in tax and overhead costs are likely to struggle to remain viable, while those with the scale and funding to navigate through these headwinds will emerge with less competition and opportunities to acquire rivals at knock down prices. 

To discuss this analysis or any business issue you may be facing in the current climate, please contact Saxon Moseley.