Helping the hospitality sector weather a perfect storm
Read time: 4 mins Added: 13/01/2023
With many hospitality businesses facing a combination of rising costs, staffing issues, and the effects of a slowing economy, we consider the steps those in the sector can take to help.
Scotland’s hospitality sector employs around 200,000 people and contributes a huge £9bn1 to the Scottish economy. But with food inflation hitting 16.4%2 in October 2022, its highest since 1989, and energy prices surging, many hospitality businesses are feeling the pressure.
Businesses whose funding is linked to the base rate may also be feeling the effect of interest rate rises. In a sector that typically operates on tight margins, and where competition is high, decisions to absorb or pass costs onto customers are tough – especially amid falling consumer confidence and an environment where customers are counting every penny.
Keeping an eye on business basics
Cost increases are just the latest challenge facing the sector. The UK’s withdrawal from the EU, combined with the pandemic, has created staffing issues: the pool of migrant workers that hospitality relies on significantly dried up.
Many hospitality roles do not qualify under new visa requirements, creating competition for staff and higher salary demands, and tighter margins. The Institute of Hospitality quotes a KPMG report from 2019, which found that UK hospitality needs 62,0003 new EU migrants each year to maintain it and grow.
“The pandemic was an evolutionary moment for hospitality. Businesses that adapted survived,” says James Davies, Relationship Director, SME Banking. “Drawing on that innovative thinking, and focusing on business fundamentals, will stand them in good stead to meet these latest challenges.”
Here are a few ideas, gathered from our experience of working with and supporting the hospitality sector, which could help.
- Add value to your staff – paying the Living Wage or slightly more is key, but additional benefits can help attract and retain staff. Pensions or other financial incentives, providing training and development opportunities, or allowing staff to take a meal at work or take surplus food home, can be cost-effective ways to make your business more attractive.
- Review your suppliers and services – if you haven’t already, look at alternative suppliers, changing menus or reducing portion sizes.
- Don’t forget the basics – do not let dealing with big challenges mean you take your eye off business fundamentals like cybersecurity or tracking your finances. “Businesses should review every single line of their costs to identify savings, from insurance to cash collection or card processing,” adds Paul Keaveney, Relationship Director, SME Banking. Digital stock systems, online banking services and accounting software can reduce admin time and costs and help you keep track of spending more effectively.
- Embrace technology – whether it’s going cashless or using stock management to reduce waste or order smarter, technology can help drive efficiencies. “There are Apps available that can help you get hold of staff at short notice if business peaks unexpectedly,” says James Davies. “QR codes and mobile ordering can also reduce demand on waiting staff, freeing them up to do other things.”
- Use your data – gathering data and using it to help understand productivity, customer footfall and spending patterns can help you plan shift patterns, product offerings or opening hours. An estimated 1 in 204 hospitality firms plan to reduce trading to lower energy costs, so knowing where to cut can be useful.
- Diversify and innovate – attract new business by offering themed events, live cooking demonstrations or cocktail masterclasses. Serving take-out as well as eat-in and using delivery services can help reach new clientele. James Davies notes: “Many of the delivery services have a big advertising spend that smaller hospitality businesses can piggy-back on.”
- Share knowledge and experience – make use of having a dedicated sector specialist Relationship Manager at the end of the phone. Industry events and networking can help you keep on top of changes impacting the industry, such as the deposit return scheme, or support you to lobby government on issues such as business rate relief, which is currently due to end in early 2023.
- Think sustainably – being more sustainable can often also help you be more efficient and attract customers. Tackling food waste could reduce costs and attract eco-conscious customers. Energy-efficiency changes such as installing solar panels could have an impact on future bills, plus there is government funding available for sustainable energy-related products and processes that enable growth.