The hospitality and leisure sector is more susceptible than other sectors to the country’s economic well-being and consumer confidence, mainly because much of their income is discretionary. Such businesses, like high street stores, also face increasing costs from rates and rent, as well as from online competitors who provide food home delivery services.
In the last 10 years disposable income has fallen as wages have failed to keep pace with inflation. Although the number of consumers buying meals has increased, this has unfortunately not translated to increased covers in restaurants. Instead, a number of restaurant home delivery companies have sprung up, allowing customers greater menu choice at lower cost, and supermarkets have continued to aggressively target the ready meal market.
Restaurant chains have faced specific difficulties. Costs have risen significantly due to rent and rate increases. Staff costs have risen too, with increases to the minimum wage. In recent years, concerns over Brexit has led EU nationals to return home, and many in the sector point to future staff shortages. This has resulted in many chains having to scale back their restaurant footprint to focus on profitable restaurants. More restaurant closures are anticipated in 2019.
Pubs also face challenges. Many, if not most, have diversified and offer food. However, pub footfall continues to decrease, due to supermarket competition and consumer trends in younger demographics moving away from alcohol consumption in favour of other drinks as well as social venues. Rent as well as operational cost increases continue to squeeze margins and again, the closure trend is expected to continue in 2019.
Bars face their own unique challenges, not least from local authority and police pressure to address antisocial behaviour resulting in licences being revoked and more strictly controlled.
Despite the challenges facing businesses in the hospitality and leisure sector, those interested in starting a business or buying premises will still be able to find good opportunities in the market place in 2019. Innovative concepts, a robust business plan and meticulous strategic planning will be the key to success. Exciting menus, new cuisines as well as a focus on technology and sustainability are all ways businesses can help attract customers.
There are also some very positive practical points to consider for those who are planning to expand or start a new venture in 2019, as the value of fixtures and fittings have decreased due to an increase in supply. We’ve seen falling premiums in good locations, with an associated fall in reduction of rents, as both high rent and high premiums cannot co-exist.
This may be the time for the brave in the hospitality sector. If you are a knowledgeable operator and/or have a good concept then you can pick up excellent premises, many of which will not require any money to be spent on fitting out. A simple ‘rebrand and run’, with minimal start-up costs can make good money, and we are already seeing this happen across the UK.
How Quantuma can help
Our hospitality and leisure sector group has extensive experience working across a wide variety of assignments within the sector. Our recent assignments include the sale of leisure club, accelerated sale of a number of hotels, handling the administration of a number of professional sporting clubs, and restructuring a number of restaurants, bars, pubs and club businesses.