The UK’s hospitality sector has taken a battering over the last two years after being the first to shut and last to open in the pandemic, and following a challenging winter and numerous train strikes, the industry is amongst those at highest risk.
Pent-up demand post pandemic is fuelling the industry to buck the trend, but of course there are still challenges. Double digit inflation has hit consumers, and discretionary spending is usually the first to be reduced. Rising energy bills are likely to treble operating costs and staff shortages are a continued theme.
In this blog, Capcon Ltd, a leading risk advisory company to the hospitality sector, and Moorfields Advisory, a leading restructuring firm, discuss how hospitality businesses can navigate through some of these challenges. Of course, acting early is key to the survival of any business.
Energy saving initiatives have to be at the heart of your strategy
With the energy price cap only in place until April 2023, many hospitality businesses could see their bills treble in the next few months. Without doubt, making some changes in this area, especially if you are a sizeable organisation, will help. If resource allows, we would recommend getting some energy consultants onboard -many work on a percentage of what they save you, therefore could be well worth investigating. In addition there are lots of smaller electronic gadgets and other strategies out there that can show how just making a few small adjustments could change costs significantly e.g. keeping room thermostats at a slightly lower temperate and optimising timing programmes, providing throws on beds, reducing breakfast hours etc.
Forecasting and business plans should become part of the daily routine
Unfortunately, it is proving more difficult to prepare short-term and long-term forecasts that take into account the shocks to the economy (interest rates, energy, tax etc). Fluctuations in business due to train and tube strikes, weather, decreases in disposable income and so forth have made business hugely unpredictable. Cashflows should be built around a weekly model with best and worst assumptions put in place and then re-assessed with real time information allowing realistic models to be formed. This will help you with your staffing and general operations strategy.
Employ forward thinking employment strategies
Labour shortages are set to remain an ongoing issue for the hospitality industry so it is important to rethink your employment structures to make the organisation more attractive to a forward thinking generation. Consider flexible working contracts, favourable shift patterns or changes in pay frequency. Favourable bonuses around upselling and cross-selling would encourage those not on long term contracts to still remain focused on the business’ goals.
Avoid slashing marketing budgets
Marketing will often be the first area looked at when reducing costs, but obviously remains essential to bring in new business. Consider marketing initiatives carefully – just because you have always done something doesn’t mean it’s worthwhile – try evaluating your marketing cost journey to purchase for individual campaigns and providers. Encourage all staff to be involved in marketing, even casual junior staff. With the rise of social media promotion on various platforms, this could provide a cost effective strategy to drive social traffic, whilst canvassing their opinion will encourage them to participate and vary their job role.
Make each part of the business its own department
If possible, try to encourage each part of the business to operate as a standalone profit centre. It will allow the business to quickly identify areas which need change and explore options to reduce cost and wastage. Profit and loss schedules should then be analysed monthly per department which should make it easier to evaluate expenses.
Don’t just renegotiate in a crisis
The pandemic was seen as the perfect time for businesses to review property rates, suppliers etc but it’s important this habit continues. The lack of new competition entering the market means suppliers will have to work harder with the customers they have, especially landlords who will be keen to avoid empty space. Take the opportunity, whilst it is there, to build continual reviews into the year. Insurance policies etc should be reviewed at least annually and assets re-evaluated accordingly. Specialist procurement consultancies can assist in this area and are often happy to work a percentage of funds saved.
Invest in technology and understand your customers
A wealth of companies cropped up in the pandemic with software packages to assist in making bookings and ordering easier. Many hospitality businesses jumped on the quickest solution possible to ensure they could at least begin to trade again in some way. Now is the time to re-assess how easy you have made it for your customers to do business with you. For example, is your area best served by Deliveroo or Uber Eats?
Ken Dulieu, Chairman of Capcon Ltd, advises that stock and cash control is ever more critical in challenging markets:
Matthew Donohoe, Director of Moorfields, says:
Businesses suffering can be quick to accept unfavourable terms, cut costs unnecessarily or fail to invest all in a bid to survive. We believe working with the right team of specialists early can be the difference in your survival and increase possible options.
Capcon offers a free, no obligation consultation to businesses who feel they may be at financial risk and wish to take preventative measures. Contact Marcus Jones, on 01372 237 050 or email [email protected].
Moorfields also offers a free no obligation consultation to business currently facing financial difficulties. Contact Matthew Donohoe on 0207 186 1144 or email [email protected].
If you or your clients want to discuss any of the issues in this article, please get in touch.