Hospitality is suffering from a decline in consumer confidence
Posted on: October 27th 2022 · read
The Covid lockdown was clearly a disaster for the hospitality sector, but government support offered for wages and rates did help many businesses ride the storm. Given the turmoil of the last few weeks and the very real possibility of a recession, the sector is understandably anxious.
Whilst Covid was a temporary abomination with pent up demand offering hope for the future, an economic downturn will have a more lasting impact.
Although the credit crunch cause of ‘the great recession’ of 2008 is different to the current situation, the resultant decline in consumer confidence does offer some insight into what the impact on the hospitality sector may be.
As house prices dropped, perceived consumer wealth in the UK where there is a high percentage of owner occupiers compared to many countries, led to a considerable cut back on spending especially as people could no longer rely on re-mortgaging to gain equity withdrawal. High gas prices also took a toll on consumer confidence.
Does this sound worryingly like the current precipice we stand on?
Declining consumer confidence at that time had a large impact on restaurants sales and profits in 2008 and led to many closures and insolvencies. Paradoxically, this was also a fertile time for the UK bar scene with many venues opening.
The casual dining sector was particularly badly hit due to its reliance on more profitable areas such as heavily marked up drinks and on the generosity of tips for staff. This is likely to be the case again.
As consumers look to reduce spending, fast food outlets offering cheaper meals will fare better, as they did in 2008. Bars not reliant on ‘sit down’ dining may also be able to attract customers looking for a more cost-effective evening out – this will also be fuelled by a strengthening of the changes in consumer behaviour exhibited during lockdown which saw more food being consumed at home. However, increasing rents and difficulty in finding trained staff will have an impact across the sector.
Larger, highly geared chains which have been expanding in the expectation that pent up demand would lead to strong trading will now be worried.
Even businesses that perform well will struggle to maintain profits, as the ability to raise prices on the back of increasing fuel and grain prices will be limited in the face of cost-conscious consumers.
The economic outlook in the next few months will be a make-or-break situation for many in the sector and it is hoped that any recession is less severe and shorter lived than the slow recovery from 2008. The government that many are pinning their hopes to has, realistically, limited room for manoeuvre, as evidenced by the market reaction to the growth ‘mini budget, as it tries to balance its post Covid books.
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