Economic challenges for the hospitality industry

December 6, 2023 byEden Fine wines

Economic challenges for the hospitality industry

As the Managing Director of Eden Fine Wines, a leading wine merchant in the North of England, I've witnessed dynamic shifts in the hospitality industry first-hand over the past few years. The impact of Covid, the subsequent stuttering recovery, rising costs, the Brexit impact on staffing in the industry and increased duty have all played a major part. In these challenging economic times, the focus on quality and resilience is more critical than ever.

The recent Autumn Statement brought critical updates for our sector. While we welcome the extension of business rates relief and the freeze on alcohol duty, the upcoming National Living Wage hike and the absence of any VAT reduction will add further pressure to the bottom line.

The key points we can take away from the statement in the drinks industry:

● Business Rates Relief Extension: Chancellor Jeremy Hunt has announced a 12-month extension of the 75% discount for retail, hospitality, and leisure businesses.

● Alcohol Duty Freeze: The duty on alcohol is frozen until 1st August 2024

● National Living Wage Increase: There will be a nearly 10% increase in the National Living Wage from April 1, 2024.

● No VAT Reduction for Hospitality: The statement did not include a VAT reduction for hospitality.

Barry Lewis, Leader at Derbyshire County Council and Owner of Amber Valley Vineyards, recently highlighted the need for support in the hospitality sector prior to the announcement. He pointed out that this year is particularly tough for the industry, arguably the most challenging since the aftermath of the 2008 financial crisis. Lewis advocates for measures like a reduced VAT rate for hospitality and tourism, suggesting that even a 5% reduction (or 12.5%) could significantly boost business confidence during this crucial time. He also mentions the importance of raising VAT thresholds to aid small businesses, acknowledging the severe impact of the current margin squeeze. It is clear that concerns and frustrations are shared at intra-party council level.

At Eden Fine Wines, we see every challenge as an opportunity to develop our business. I'd like to share five key recommendations that I believe will be instrumental in navigating the evolving hospitality landscape in 2024.

Recommendations for staying resilient in 2024:

● Avoid Cost-Cutting at the Expense of Quality: In challenging times, it's vital not to compromise on quality. Consumers are more selective and will gravitate towards establishments that maintain high standards in food, drink, and service. There will be homogenisation and consumers will eat out less. But when they do, it will be more of a treat and they will be prepared to trade up with the right recommendations.

● Value Staff: Post-Brexit, the labour market has tightened and labour costs have dramatically increased. It's essential to look after your team, focusing on working conditions, recognition, and avoiding burnout. A valued team is more likely to stay committed and contribute positively to your business.

● Smart Menu Choices: Don't resort to inferior products. Tailor your menus intelligently, choosing items that maintain quality while being cost-effective, like switching from fillet steak to rib-eye or choosing high-quality wine alternatives from lesser known regions. A carefully structured, modern wine list can do a lot of ‘selling’ for you – gone are the days of just listing wines in price order.

● Focus on Value, Not Just GP Percentages: Shift the focus from gross profit percentages to providing value achieving a cash margin. For example, pricing a quality Albariño to give the same cash GP as a less expensive wine can enhance customer experience and encourage repeat business.

● Prioritise Customer Value Over Cost: Customers are looking for value for their money. Don’t hesitate to charge a fair price for high-quality offerings. If customers perceive value in what they're getting, they're more likely to be satisfied and return.

Real-World Challenges and Solutions: Insights from Industry Leaders

I recently had the opportunity to catch up with of our key customers, who shared some valuable insight into challenges faced by the hospitality industry and how they are dealing with them:

Robby Scott, Director of Babucho Restaurant, Newcastle

Robby sheds light on the harsh economic realities facing smaller establishments: "The economic and trading environment is extremely challenging... Small restaurants struggle to maintain profits amid increasing net margin pressures." He advocates for government support, such as VAT reduction, to aid independent businesses, highlighting the necessity for external assistance in these trying times.

Alessandro Ceolin, Operations Manager, LIVIN'Italy, Leeds

Alessandro highlights their innovative approach, by focusing on premium services, continuous profitability, accurate stock management, staff training, and advanced technology has been pivotal. Alessandro explains, "These strategies collectively aim to optimize resources, enhance staff skills and engagement, and leverage technology to address challenges like staff shortages, turnover, and rising costs. Implementing these improvements is crucial for overall efficiency and resilience, especially with the anticipation of potentially worsening conditions in 2024."

Aiming for Brighter Days

As we face the challenges ahead, remember, the future is indeed bright for those who prepare and adapt. It's about buckling down, potentially even focusing on break even points at times, and laying the foundation for future success.

If anyone reading wants to have a chat, please reach out or leave your comments below.