The hospitality and foodservice sector will lose £23bn in the second half of 2020, achieving only 53% of 2019 income levels, according to a new report.
The ‘Immediate Future’ of the UK Hospitality/Foodservice market’ report covers the 18 months from July 2020 to the end of 2021 and provides detailed forecasts for each sector, by number of outlets that will be open by the end of the year and the level of turnover to be expected.
The report has been produced by Simon Stenning, founder of FutureFoodservice, a forecaster, analyst and commentator on the UK hospitality and foodservice market. It comprises over 120 pages of analysis, data, forecasts, factors and trends.
For the whole of 2021 the report forecasts that the industry will see a £10bn fall in revenues, down to only £88bn, 10% lower than in 2019. However, as a result of coronavirus, the research suggests 22% of all hospitality outlets will not be open by the end of 2020.
The report forecasts long-term growth for the industry, estimating that it will recover to 2019 levels by 2025 at the latest, as the economic impacts linger, but that it will eventually increase to £108bn by 2030.
Stenning commented: “The hospitality industry faces enormous challenges and a worrying situation of losing 47% of normal revenues. It is imperative that the government provides significant levels of support given that it is such an important employer and tax generator.
“This is a cautious, not-overly ambitious forecast, but not the worst-case scenario. All sectors of the industry are affected, and it will take time for consumers to revert to their previous behaviours.
“The incredibly hard-working, caring and hospitable nature of the industry will do its utmost to professionally manage the welcoming back of customers and provide safe spaces for us to enjoy our social lives again. However, economic, consumer, profitability, safety and locational factors mean that the industry has to face challenges never encountered before.”
The report also highlights the effects of the contraction on UK plc. “The significant fall of £23bn in 2020 alone implies a fall in VAT of £4.6bn, losing the government significant tax revenues, along with an increase in social costs emanating from the loss of employment from an industry that directly employs over three million workers. It is therefore imperative that the government provides support,” said Stenning.
The report cautions that whilst there is some optimism from various consumer research studies, a recent figure quoted by research firm CGA revealed that 21% of consumers would eat and drink out less frequently than before, and insight from recent research commissioned by Marcus Wareing found that 34% of consumers are expected to spend less when they returned to restaurants. These insights imply severe revenue decreases for operators. Consumers will also certainly have high expectations over the standards employed to keep them safe, and the value that they receive from the experience.
Financial modelling in the report suggests that despite decreasing headcount, reducing costs and maintaining margins (which will be harder with potential increases in supply chain costs), a restaurant operating on 50% normal sales plunges to a significant loss, and only a rent reduction, rates holiday and drastic salary cuts will enable many restaurants to break even.
Economic challenges include running sites that are operating at sub-optimal financial levels, and potential stand-offs with property landlords over rent reductions to suit reduced levels of trade. The report forecasts that 22% of all hospitality outlets will not be open by the end of 2020.
The new normality post-lockdown includes an expected reduction in travelling and commuting by public transport and more working from home, together with dramatic falls in in-bound tourism. As a result, the report predicts certain sectors of the market will fare better, including fast food, which could steal share from service-led restaurants, due to their ability to provide takeaway, delivery and drive-thru services, as well as delivering intrinsic value.
The report forecasts that fast food will achieve 77% of normal revenues for the rest of 2020, whereas service-led restaurants will achieve only 48%. Other sectors which could struggle this year include hotels, travel, and leisure. Sectors that are better protected against the impact drivers include contract catering, due to the breadth of services provided: pubs, due to their local nature and potentially benefiting from an increase in staycations, and high street foodservice that provides packaged, value-led products, although city centre footfall will be reduced.
Other predictions include a rapid deployment of new technology to help with the challenges, especially with order and pay systems and apps, but also with automation and applied AI. Whereas pre-Covid many operators felt that tech would only play a marginal role in their businesses as the nature of hospitality is all about human interaction, the report suggests we will see the biggest paradigm shift, as technology solutions that reduce staff contact will now be embraced by both operators and consumers.