It could be a rough journey ahead for the leisure industry – but there’s still time to prepare, says Will Hawkley.
As large numbers of people head off on their annual escape to the sun – or perhaps to a slightly more bracing campsite closer to home – what better time to ask how well Britain’s hotel and leisure industry is coping with Brexit?
It’s a mixed picture, to be honest, much like the wider economy. Inbound tourism is booming as the weak pound attracts overseas visitors. Hotels’ revenue per available room (RevPAR) rose by double digits in the second quarter of 2017. But sterling’s slide means tour operators who sell foreign holidays to UK tourists are finding it harder.
As with many other sectors, the strategy of “domesticating the supply chain” is successful. The desire to avoid imported inflation has encouraged ‘staycationers’ by making foreign holidays more expensive for British consumers and increasing the attraction of holidaying at home.
While the annual holiday continues to occupy a central part of many families’ budgets, the eating out and casual dining spend appears to be softening. When tourists take their cash home, we will see how exposed businesses are to the real decline in UK leisure spending. Pubs and restaurants outside London and other major cities are starting to find life difficult, but hotels could also find things tougher than they expected.
And things are likely to get tougher as cost pressures increase. New pension requirements and a rise in the national living wage will increase staff costs, adding to upward wage pressure from inflation. If that isn’t enough of a headache, the leisure industry relies heavily on EU nationals who may choose to work elsewhere because they are worried about their status after Brexit. If this happens, leisure businesses will have to compete more fiercely with other industries for staff, pushing up wages further.
But successful businesses will adapt by controlling costs, innovating and understanding their customers.
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Summer is still with us and businesses still have time to prepare and adapt. Smart pubs and restaurants are following retailers by adjusting their products. Menu engineering is one such strategy. This involves reformulating portion sizes and using lower cost ingredients and less labour-intensive cooking processes to relieve pressure on margins or customers’ wallets.
And if labour is becoming scarcer and more expensive, then finding ways to use less of it through productivity improvements is a logical next step. So get ready too for more tablet computers taking your order as restaurants reduce costs. Waiting staff can serve appreciably more people if customers use a digital device – and experience shows us that those customers are likely to spend more.
Companies that offer training, opportunities and benefits are more likely to keep their staff - and may find it is more efficient to have better-skilled staff who stay. We also expect to see more companies coming up with benefits, such as one high profile coffee chain’s offer of interest-free loans for house deposits.
Looking hard at the value chain from start to finish is a useful strategy for holiday importers too. Just as buyers of goods are looking at alternative sources, so too are tour operators. They are looking at new destinations such as Bulgaria and offering more all-inclusive deals to give customers certainty about pricing.
The British relationship with our national weather may be a triumph of hope over experience - but, for the leisure industry, there are plenty of reasons to look ahead with genuine optimism. Devise imaginative ways of continuing to keep your customers happy, anticipate and respond to their changing needs and budgets and the outlook is promising.
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK. You can register for the email subscription list of this column and expert views from our Brexit leaders.