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Added: 13/01/2023 Read time: 4 mins
As many businesses in the hospitality sector face a perfect storm of rising costs, staffing issues, and the effects of a slowing economy, we consider some steps the sector can take to keep on track.
With food inflation hitting 16.4% 1 in October 2022, its highest since 1989, and energy prices surging despite the introduction of energy guarantees, many hospitality businesses are feeling the pressure. Even businesses that are eligible for the government scheme are aware that it won’t last forever, so they’re having to think ahead.
Climate of rising costs
Interest rate rises to combat inflation, mean that businesses with funding linked to the base rate are also facing a squeeze. In a sector that typically operates on tight margins and where competition is high, decisions to absorb or pass costs onto customers are tough.
This is more pronounced now that consumer confidence is falling, and customers are counting every penny.
Rising costs come on the back of a difficult few years for the sector. The UK’s withdrawal from the EU, combined with the pandemic, has created staffing issues. Paul Keaveney, Relationship Director, SME Banking at Lloyds Bank, explains: “It seems a lot of people left after the referendum vote, then others went home to be closer to their family during the pandemic and now it’s not easy to return. The pool of migrant workers that hospitality depends on has significantly dried up.”
Keith Barr, CEO of the InterContinental Hotels Group, agrees. He has noted that the UK hospitality sector relies on 62,000 2 new EU migrants each year – but with many industry roles not meeting the post-Brexit salary requirement set by the government, there is a shortfall, increasing competition and salary expectations, which impacts margins.
Despite being hit hard by the pandemic, many businesses showed remarkable resilience. “Businesses that survived were those that adapted their business models. It’s drawing on that kind of innovative thinking, and focusing on business fundamentals, which will help them meet these latest challenges,” adds James Davies, Relationship Director, SME Banking at Lloyds Bank. So, what steps can the sector take to manage these challenges?
No matter what you do, it should be tailored to you and your business. Remembering this, and not losing focus on the operational fundamentals, should serve you well as you continue to manage the challenges facing this important sector.