I can’t think of a tougher time for hospitality. For the first time in several generations, businesses need to charge more (rampant increase in costs) to customers who have less money in their pocket (cost of living crisis). How exactly does that work and how can you escape the centrifugal forces that might throw you out the game?
Firstly, hotels sitting in different demographic segments are feeling the pinch in different ways with the mid market segments feeling the ferocity of commercial pressures more than most. These properties had the tightest margins to begin with, and these properties are now being serviced by a predominant leisure market that has less money. Move up into the luxury market and wider margins allow for a bit more breathing space, but pressures remain proportional and quick wins are hard earned.
What are the industry thinking?
There was a great interview with Kate Nicholls (Uk Hospitality) in 2021 in which she indicated (and I paraphrase) that owners of hotels should not expect pre pandemic margins until 2024 and that with stiff headwinds ahead expectations should be downgraded? How many owners heard this? How many GM’s have been caught in the brutal ideological/reality sandwich with owners only accepting less than optimal results so long as there is blood and intestines on the floor. Maybe this explains the surge in GM movement over the last 18 months.
Over the last 3 years, I suspect, anecdotally, that wealthy owners (not by any means all) have seen their net worth significantly reduce and the scramble to shore up cash losses has at times created a fractured approach. A stark example; some businesses continue to fight tooth and nail to keep their wages unnaturally low, slash training and team benefits, whilst other businesses have identified the importance of their staff base, with loyalty and altruism the safer way to service the future. Horses for courses.
The times in which we operate are not without encouragement. Many operators I know have ripped up the traditional hotel model without hesitation to innovate and navigate new ways forward through the fog. Who’d have thought breakfast bookings would become the norm? How many of us have capped dinner restaurant business to protect the team? And it seems to be fine that rooms are serviced less and only when the guest requests it. There have been a ton of paradigm shifts, more so in the last 3 years than the previous 30. Financial pinch points are waking up people to a new future, and as the old adage goes, the futures not what it used to be.
To the Government. There is a general acceptance that the government has done all that it could/can to help hospitality through Covid and the current cost of living crisis. From the internationally generous Furlough Scheme, Eat Out To Help Out, Business Rates Relief and VAT reductions, our industry was given a robust crutch to lean on. There is equally a view that the government should do more. Central to this was the representation to government 2 years ago in which it was requested that Hospitality be represented by its own minister. We collectively operate a £140billion universe. Surely this scale of activity requires its now minister? Alas, despite the opportunity, we went in with a one trick pony – Covid support. It was such a damp squib. There was so much more to talk about. So much more to be considered.
If we accept that the Government has run out of free money, which it most definitely has, what else can the government do to assist hospitality? Some of the suggestions below have been bubbling around forever and yet even with so many people crying into their beer, nothing ever seems to happen. Like nothing. Ever.
- There are still meaningful careers to be had in hospitality. I refuse to believe we’re a work force dominated by minimum wage dead-headers. Many operators automate and scale back because what we get from colleges is diminishing in both quality and volume, whilst youngsters who join the industry outwith college are not sufficiently trained to satisfy the digital Gen Z employee. Much more work is required to get youngsters to accept that a life in Hospitality can be a genuine, nourishing and rewarding career, rather than perhaps a transitory option to fund better things.
- Brexit was devastating for our workforce. No one saw it coming until it was too late. Now the dust has settled, surely we can let some essential workers back in. I get the immigration argument and that our population just exceeded that of France for the first time in history, but surely we can have a visa filter that just doesn’t promote world class £150k surgeons from India, but actually allows £25k chefs from Poland to fill in our gaps. The Future Shock report from UK Hospitality and CGA found that one in seven hospitality industry jobs are now unfilled, with nearly half of hospitality businesses having to reduce trading hours as a result.
- Points 1 and 2 eloquently lead on to the elephant in the room which is, working conditions. Few industries remain in the UK that have so successfully retained elements of Victorian work-house culture at their heart. As an industry we have an unerring knack of grinding people to dust – whether it be 70 hours a week (only 40 paid – 30 in neverland lieu), no days off, no breaks, no on-shift feeding, and holidays cancelled at short notice. It’s a hypocritical contradiction when leaders drive their people to abject misery only to expect them to light up the lives of those they serve. The fact that they do, repeatedly, is testament to them rather than their leaders. Green shoots of change are encouraging from a handful of operators but it remains to be seen how long it will be to see wide-scale change. A Minister for Hospitality would be crucial in establishing an acceptable work life balance for employees, whilst curbing employers from exploiting their people.
- Reduce VAT to 10%, permanently, a rate commonly found in other European countries. With the chancellor committed to 20% VAT rates until 2026 at the earliest, hope for change in the near future looks futile. The internet is awash with energetic petitions, gloomy comment, wistful leadership quotes and fatalistic statistics. Colin Wilkinson, managing director of the Scottish Licensed Trade Association (SLTA), said (Aug 2022) “as costs continue to rise and businesses continue to struggle with staffing, “it is crucial that both the UK and Scottish governments listen to our concerns”.“Many businesses no longer open seven days or they open later in the day because of rising energy costs and lack of staff so a cut in VAT would go a long way to helping them on the road to recovery and provide much-needed support over what will be a very difficult few months,” This a sentiment echoed across the industry. Reduced operating capability = industry decline which in turn reduces tax receipts into the exchequer. It’s difficult to judge this governments VAT strategy as anything other than a self inflicted wound. But, it’s ok, we’re British. Just carry on.
- The cost of Compliance! I remember as a child my grandfather telling me of his own childhood in which he’d frequently milk cows and drink unpasteurised milk, roll in the mud from dawn till dusk and have so many scabs on his knees he didn’t know which one to use his only plaster on! He lived until he was 84. Roll on 90 years and there have been seismic advances in genuine Health & Safety which I’m sure we’re all grateful for. But at what point did common sense Health & Safety become an obsession with even the smallest of risk being identified as an issue that could cause the end of the world. Moreover, the cost of compliance across hospitality continues to spiral. The irony here is that we pay insurance companies increasing sums to cover us if anything goes wrong, only to have the added cost of paying H&S companies to make sure nothing does go wrong. Typically, the average hotel has 96 risk assessments that each employee needs to sign off as read and understood. This was 60 5 years ago. Will it be 200 by 2030? The cost of training H&S in hotels is typically hidden in payroll which in itself is under incredible pressure.
When it comes to H&S we’ve become numb and accepting to ever higher costs without there being a voice from industry (backed up by statistical data), to basically that ‘we’re safe enough thanks’.
The Epoch of Innovation
Forget the government. Thank for them for not going bust in 2020. in 2023, it’s down to you. The white horse Rishi rode in on throughout the pandemic is now out to grass on the grassy slopes of Chequers. If your waiting for some further intervention I suspect you’ll be waiting a long time. Instead, use this time to think outside the box and do WHATEVER is required to remain solvent.
For me at least this time WILL be remembered as a time of creativity and innovation. As an accepted innovator in my field now is the time (Between GM roles) to get traction on concepts no one would have touched pre-covid. As an industry we need our Millennial, Gen X leaders to fully embrace the capability of digital processes, if only to reduce the analogue pressures on the staff we do have, the staff we want to retain, and nurture, and to potentially replace us one day.
