The Hospitality & Leisure (“H&L”) industry faces an uncertain year ahead. The New Year brings with it a double-edged sword: a global recessionary environment where high-interest and inflation rates threaten consumer spending & H&L revenues, coupled with energy uncertainties that continue to hike the direct and indirect costs of service delivery (hotel shower gels to raw food and utility costs). This article outlines the areas where the H&L industry is likely to be most affected: their direct and indirect expenditure.
Direct:
It’s worth noting that a core segment of the H&L industry constitutes of food services, which pre-COVID contributed £40B annually to UK H&L revenues. This was closely followed by the accommodation sector, which contributed approximately £20B. Both of these sectors place food & drink as a core aspect of service delivery (“a direct spend”). This makes the H&L industry exceptionally sensitive to the price volatilities of foods. According to an analysis by Fourth, dairy products are up 40% from 2019 costs, while meat and grains are both up 35%. Drink costs are up 13% in the same period. These drastic and inflationary rises threaten an industry whose value propositions are centred on delivering great customer experiences. In response to these challenges, restaurants and food venues are re-creating menus and streamlining their complex supply bases to maintain profitability. Re-designing and future-proofing operating models is a clear solution to a) the uncertainty of price volatility regarding direct service costs, and b) maintaining customer loyalty through sustainable pricing during the cost of living crisis.
Indirect:
From operating electric and gas-based equipment in professional and restaurant kitchens to commercial and industrial washing machines, utility costs make up a significant part of the back-end service for H&L operators. Unfortunately, events since the Ukraine war (EU resistance to Russian energy as well as OPEC’s decision to cut oil supply and maintain pricing levels) have fuelled demand into the wider energy mix. Given the hospitality & leisure industry consumes around 20,910 GWh annually (enough to power 1.2 million homes) – of which a significant share is commanded by food services (cafes/restaurants) & accommodation services (hotels) – surges in energy prices will undoubtedly affect the full value chain of consumables that the H&L rely on (shampoos & shower gels to raw foods). The increases in energy affect the manufacture, packaging and transport of consumables, which reduces the profitability of H&L operators. The challenge for H&L operators is to assess the areas of indirect spending (like consumables) which suffer due to their exposure to energy-price volatility and to overcome these pricing challenges in a way that maintains a consistent customer experience and sustains brand loyalty.
With a track record of successful change management across B2C and H&L businesses, 4C is acutely aware of the intricate challenges faced by food, drink, accommodation & leisure-related businesses. 4C can help companies overcome the pricing challenges facing the H&L industry, by future-proofing your operating model, streamlining your supply bases, enacting strategic partnerships, and fundamentally increasing your operational resilience.
