Hospitality in a recession: how businesses can overcome economic downturn
The majority of hospitality businesses will have suffered at some point or another in the past few years, with the immediate and knock-on effects of Covid-19 lockdown measures massively curtailing revenues and profits while causing widespread closures throughout Europe.
When the lockdown measures were eventually rescinded, a sense of hope for recovery was kindled, with optimism for a return to pre-pandemic operations. The reality, however, was less encouraging – hospitality businesses were, in fact, closing at a higher rate in the last quarter of 2022 than they were a year previous. With a staggering net closure rate of 18 sites a day, the prospect of returning to the pre-Covid status quo seems far off.
But with the pandemic behind us, what has inhibited recovery? Factors like inflation, weak consumer demand and staffing problems have severely stunted any potential comeback.
While the ever-important December trading figures showed UK hospitality having its best December in three years, sales were still below pre-Covid levels in real terms, up by only 2% on December 2019 but still lagging far behind when adjusted for double-digit inflation. More broadly, a drop in overall retail turnover and consumer demand in Europe has led to mass closures, painting a troubling picture for the future growth and prosperity of the sector.
As we progress further into 2023, it becomes more and more important to understand the factors holding hospitality back, and to consider what ailing businesses can do to keep their doors open. With limited indications that widespread economic hardship will let up, is it even possible for hospitality businesses to thrive?
The obstacles on the road to recovery
Hospitality businesses, especially those that sell alcohol, are typically very low-margin enterprises. With inflation above 9% in Europe and still above 10% in the UK, the rising cost of goods makes running a profitable hospitality business extremely challenging without significantly increasing prices, a counter-productive strategy given the drop in consumer spending.
But inflation and reduced consumer spending are not the only factors responsible for the high rate of hospitality closures in the UK. Rising energy costs have been a thorn in the side of businesses and households alike. Increasing the burden, the government’s planned energy bill support scheme for businesses was scrapped, with subsidies scaled back by almost 85%. Higher energy bills are a challenge for any business, but none more so than a low-margin retailer such as a bar or café.
Staffing has also become a major concern, with 149,000 vacancies at the end of 2022, compared for 85,000 in the same period before the pandemic. A number of factors have created this situation in the UK, with many hospitality workers switching to more flexible remote work during the pandemic and fewer EU workers available to hospitality employers.
These social and economic factors make operating any business difficult, but running a profitable restaurant or bar in the face of these challenges seems like a Herculean task. What can hospitality decision-makers do to rise to this challenge? Is profitability actually an option?
Tightening up
When consumer spending is low, customer loyalty and repeat business become invaluable. While great customer service is essential, competitive promotions and loyalty bonuses go the extra mile in ensuring regulars will keep coming back and keep providing a foundation for revenue. Happy hours, lunchtime specials, live music – anything that will maintain and expand the business’ market share are a wise decision.
Given the rising cost of goods, businesses will need to be run as efficiently as possible in order to make their revenues count. Adopting a ‘minimum waste, maximum income’ mentality and optimising all their business flows – from reducing food waste and spillage to changing suppliers to secure a better deal – can have a real impact, while upgrading energy-efficient fittings and equipment can help keep overheads down.
Getting the most out of businesses’ facilities and staff means increasing order volumes wherever possible, so amending menus to match consumer tastes or even adopting a secondary virtual food brand can secure more orders and put businesses back on the path to turning a profit.
Making the most of kitchen capacity through new or updated menus can provide an invaluable source of additional income at a time when times are at their most challenging for hospitality – many can’t afford to ignore it.
What’s next?
2023 is shaping up to be a difficult year for hospitality in the UK and throughout Europe, but our situation is not without hope. Businesses that are savvy, well-run and make the most of the opportunities at hand will make it through, and the best – the ones who make every effort and are willing to adapt – will surely thrive.
For the time being, however, I would be happy just to see the rate of closures slow down – we have lost enough cafes, bars, and restaurants in recent years to last a lifetime. Hopefully decision-makers will do everything they can to keep their doors open.
About Peckwater Brands
Peckwater Brands (PWB) is a delivery franchising expert, helping restaurants and kitchens of all sizes benefit from the fullest demands of the market by streamlining the process of embracing virtual brands and multiple-franchise solutions. Working with partners across the hospitality spectrum, they can transform any kitchen into a multi-franchise operation, integrating with their existing operations and opening them up to vastly increased demand across different brands and cuisines.
