The challenges facing the food and hospitality industry

From food and drink to accommodation to tourism, the hospitality industry touches nearly every part of the UK.  It’s at the forefront in gauging the elusive “feel good factor”, and a major driver of the broader economy, generating more than £100 billion annually, and providing employment to around 3 million people (that’s 1 in every 10 jobs!). 

But it’s also an industry facing a challenging future – the headwinds are many and varied, including everything from macroeconomics to the good ole British weather. 

In contrast, the solutions are few and limited. 

Hospitality is an industry dominated by smaller independent cafes, restaurants, guest houses and transport operators rather than multi-national chains – and smaller businesses are usually much quicker to feel the pinch.

Declining customer numbers 

The industry has experienced tough times in recent years with a substantial dip in the number of customers, visitors and tourists.  Declining numbers affect the entire industry – For example, fewer tourists usually means fewer restaurant customers, fewer hotel bookings and fewer taxi journeys.  

That’s a red flag for an industry dominated by smaller players. Many businesses have already fallen along the proverbial wayside.  For example, 2021 ended with around 3,000 fewer pubs trading than in 2019, and 1,200 fewer trading restaurants.  The first three months of 2023 have seen the number of pubs in the UK drop by around 50 a month. 

On face value, fewer businesses, should mean fewer choices for customers, and by the laws of averages, that should mean that those still left can plug the gaps and look forward to a rosier future.  But it doesn’t always work that way. 

Customer behaviour has changed; tourist bookings are down, families are more likely to holiday at home, and there’s less demand to go out for a meal or order takeaway.   

The net result is that customer numbers are yet-to-return to their previous highs. 

The staffing crisis 

Hospitality is a classic service industry; it’s driven by people, for people.   So, recruiting and retaining staff is crucial to its long-term success. 

But it’s becoming increasingly hard to recruit staff.  Low wages and long hours, a shortage of long-term career paths and infrequent opportunities for advancement all take their toll. 

Last Summer, data from a leading workforce supply company, suggested there are now more people working in hospitality than at any time in the last two years, but the industry is still having to replace 6% of its entire labour force every month (an annualised rate of more than 70%).  Compare that to the average annual national staff turnover of around 15% per year. 

Staff are frequently leaving in pursuit of higher wages, and better career opportunities (hospitality can struggle on both of these issues).  Although pay rates are rising sharply – up 8.5% for pub workers and 6% for restaurant employees -that’s still below the level of inflation which has been stubbornly high in recent months.  

Economic pressures 

Inflation has also affected other parts of the industry.  Energy bills have been a particular source of pain for both families and businesses.  Although wholesale energy prices are finally starting to fall, the end of government subsidies means that many small businesses will shortly bear the entire brunt of gas and electric bills.  That could be worth an additional £18,400 a year from now onwards. 

Of course, increased inflation has resulted in higher interest rates.  While still relatively low against previous historic levels, even at 4%, the hospitality sector remains susceptible to the peaks and troughs of the wider economy.  That’s been particularly obvious in the recent disruption caused by industrial action.  Transport operators have been forced to cancel trains and flights because of protests over the general cost of living.  Some sectors have been hit by strikes overseas – for example, a number of flights have been cancelled or severely delayed due to industrial action in France which have effectively closed French air space.  

Searching for solutions 

While there is no magic bullet to instantly resolve all of the problems facing the hospitality industry, there are at least some helpful pointers which collectively help to lessen the burden.   

Better efforts of protecting revenue by, for example, looking to prioritise existing and repeat customers over new ones will help.  So too will focussing on quality over quantity, and investing more time and effort into staff retention and training.   

But better business management can also play a significant role.  Small businesses generally struggle to dedicate enough time and resource to managing themselves.  That’s a problem that’s particularly acute in hospitality, where some businesses can be open from dawn to dusk, and with limited opportunity for owners to take time away from the front line. From accounting to stock handling to staff management to innovative ideas to future planning, there are many facets to simultaneously monitor and control. 

Fortunately, Aqueous offers an all-in-one insurance product which is aimed specifically at small businesses. It’s designed to cover the risks associated with the day-to-day running of a small to medium-sized business. The cover can be targeted to include Material Damage, Business Interruption, or Employer’s and Public Liability.  Our product can also provide more bespoke solutions as we understand that no two businesses are the same, and certain industries – particularly hospitality – can face some unique risks.    

If you’re interested in learning more about our SME Package and how it can help your clients within the hospitality sector, get in touch with us here – or give the team a call on 0203 574 8553 today. 

– Authored by Tom Hill, Head of E-Trade