Looming Challenges

The hospitality industry closed 2016 in good heart. The major political event, Brexit, has yet to negatively affect the industry’s well-being: indeed, the weak pound has boosted UK visitor numbers (though spend is not so buoyant) and the UK remains a key world tourism destination. The weak pound will encourage more UK residents to opt for a staycation next year. Consumer spending on eating-out remains high. The principal downside of Brexit – the likely restrictions on migrant labour, particularly the unskilled labour that the industry needs to survive in its present shape and to expand further – has yet to hit employers. When they do, however, the impact will be serious.

But there are more immediate challenges. In April 2017, the National Living Wage rises to £7.50 a hour, a 30p rise. That doesn’t sound much but over a 36 hour week, that’s another £10.80 a week per adult employee. With so many employees on the NLW (over 60 per cent?) the cost to the industry will be significant. To reach the government’s much publicised £9 per hour by 2020, the NLW increases in 2018 and 2019 will have to be very much greater. There is also the pressure that the NLW puts on wages higher up the scale (the so-called differentials); even more serious, if Brexit does restrict the employment of migrant labour, manpower shortages will inevitably result in a natural increase in wage rates over and above the NLW. Pension costs will be an additional burden.

All in all, this is a challenging scenario. The next few years will pose huge problems and employers would be wise to recognise them now. Wage percentages are going to be put under extraordinary pressure and no employer will escape.

Wage increases represent one danger; food inflation is another. Already on the rise, some estimates put food inflation at four per cent in the next 12 months. Restaurant operators, already running their business on tight margins, will find rising food costs will make those margins even tighter. But, if quality suffers, or portion sizes are reduced, reputations are inevitably harmed. And if prices are increased, the competition may win.

Having a software system to keep track of your menus’ rising costs could alert you before it’s too late. Being able to adapt your recipes or change your suppliers without significantly impacting your business will allow you to keep on top of rising food costs and ensure you are maintaining a healthy margin. If inflation rises at the anticipated rate, engaging with software may not provide the definitive solution, but it will certainly help keep control of those costs.

Employers need to think now about how they deal with these two looming challenges. Cost increases are already beginning to press hard on the industry’s economics but they will become much more painful in the next three years.

The principal objective for any operator is to maintain standards and attract additional business. Customers, more demanding than ever, need more enticements than ever to visit a hotel or a restaurant – for the latter increasingly important will be the introduction of new tastes, value-added dishes and unusual price offers or special events that provide new excitements and extra points of interest that resonate with the needs of the target market.

And realism will become more important. If Mondays are always dead it’s probably best to close and concentrate on boosting business on other days of the week which offer far greater potential reward.

With a changing menu and by constantly developing the ambiance of the restaurant as a must-visit venue, the best operators will inevitably become more showman less restaurateur, more entertainer less businessman. Flair, quality, engaging early with dynamic software and being creative will most likely result in the most successful operators. Brexit and its economic consequences will demand disciplined as well as creative management.