Over the past 12 months, the UK hospitality sector has demonstrated its resilience and ability to withstand the challenges of months of lockdown, with many businesses experiencing a bounce back in trading in the summer months. However, in the run-up to what would ordinarily be a business festive season, new data suggests a drop in business confidence as the sector continues to grapple with rising energy costs, food price inflation, staff shortages and a drop in consumer confidence.
Data from the Office of National Statistics (ONS) published on November 17, has highlighted a number of the pressures facing businesses in the sector. Of those surveyed by the ONS, almost half of businesses in the accommodation and food services industry reported a decrease in turnover in October compared with the previous month. Strikingly, around 40% of businesses in the sector also said they are expecting turnover to decrease in December, the peak of the festive season, with just 17% anticipating a growth in turnover for that period.
The reasons for this are perhaps plain to see, with over two thirds of those surveyed in the sector reporting an increase in the price of goods and services during October, and about half reporting that their production and/or suppliers have been affected by recent increases in energy prices. Consumer confidence continues to be hit by the cost of living crisis, while recruitment is also an ongoing pressure point, with over a third of businesses reporting difficulties in attracting employees in October.
Faced with these challenges, about half of businesses surveyed in the sector have reported having to pass price increases on to customers, while almost a third have reduced staff working hours. A quarter of the accommodation and food services businesses surveyed also reported a moderate risk of insolvency. Against this backdrop, it is perhaps not surprising that almost a third of businesses surveyed in the sector expect performance to decrease over the next 12 months.
Challenging times ahead
Faced with these challenges, it is encouraging that almost three quarters of businesses in the sector reported a moderate or high level of confidence that their business will survive the next three months. Over half also reported having absorbed price increases, suggesting a level of resilience among businesses that have already demonstrated their ability to adapt and innovate over the last couple of years. Many hospitality businesses will also be hoping to see an uptick in activity in the run-up to Christmas, particularly as this coincides with this year's Football World Cup in Qatar.
Nonetheless, there is still immense pressure on businesses both to develop new strategies and find new efficiencies to protect income in a challenging economic outlook. Inflationary pressures, rising energy prices, recruitment pressures and supply chain issues are only adding to the challenges faced.
For directors who are worried about the short-term future of their business, early engagement with experienced advisors can be very valuable in assessing restructuring options and, where appropriate, utilising the mechanisms available to rescue businesses.
To find out more, contact Fiona McKerrell or Suzanne Knowles, in the restructuring and business advisory team.