It did not come as a surprise that the Government’s Autumn Budget increased the burden on hospitality. The Chancellor had let it be known that difficult decisions were needed, and that businesses would be asked to contribute more.
The hospitality sector has been clear about the need for extra support, having seen a 13% contraction in the number of licensed outlets from pre-pandemic benchmarks. However, this figure belies an even greater level of churn and closure in the market, and only 80% of the sites open at March 2020 are still trading now. The Hospitality Market Monitor from CGA and AlixPartners has shown that independents have been hit even harder, with a net loss of 16% of sites and only 75% of premises steady over the last four years.
The impacts of these closures reach far beyond the bricks and mortar of the venues. 62% of consumers told CGA’s Consumer Pulse that eating and drinking out is the main way they socialise with people, and 46% agree that it is a fundamental activity in their lives. The closure of a venue is the loss of a community asset, and a diminishing of the social and cultural economy for which these spaces are the catalyst.
While the high churn rate underscores the scale of the issue, it is also a statement of the investment—in finance, time and soul—that continues to pour into the sector. Since year-on-year tracking recommenced in January 2023, the CGA RSM Hospitality Business Tracker has recorded positive like-for-like sales growth in 21 of 22 months. Consumers have remained remarkably willing to absorb price increases, demonstrating that it is the cost of operation, not consumer and business appetite, that is inhibiting the industry’s success.
The industry has been frank that the levels of support announced in the Budget—business rates relief at 40%, an increase in Employment Allowance and a 1.7% reduction in draught duty—are not enough to offset increases in National Insurance contributions. Permanently lower business rates are promised for 2026-27, but with payroll increases unnervingly close, and leaders’ confidence falling, businesses will have to act quickly and creatively.
Many will be wrestling with the idea of staffing cutbacks, but this is not without its challenges. 67% of consumers told CGA’s Cost of Living Pulse that eating and drinking out is the treat they most look forward to, and with BrandTrack showing that 17 of the top 20 brands for consumer satisfaction also boast the highest service quality perceptions, it is clear that top-grade staffing is inseparable from the hospitality experience.
Leaders with the luxury of cash to invest have already identified technology, customer service, and staff training as their top three investment priorities. AI is being promised as the everything-solution, and in time it might replace some manual tasks—but this presents yet another balancing act. Zonal and CGA’s Go Technology research has demonstrated that many consumers are in favour of streamlining service admin through the use of tech in bookings, cancellations and reminders, but they also want to protect personal human interaction that 73% say they derive most joy from. Leaders must be mindful that while automation can deliver gains, consumers might expect the freed staff-hours to be reinvested in the quality, face-to-face service that matters.
Suppliers must also pay heed to any cutbacks to front-line staffing. CGA’s Global Bartender Report highlights the brand ambassador opportunity in a well-trained workforce, with 79% of bartenders making drinks recommendations every shift, and 95% of guests being swayed to choose those recommendation on most occasions. A penny off a pint might not mean much to a consumer, but for leading brands serving up a combined 3.2 billion pints every year, there are a lot of pennies to be saved.
Producers of spirits and packaged formats are already on the back foot, seeing volume share creeping towards draught, which is often perceived to offer better value for money. The Budget does little to ease these strains, and a multi-level strategy to sell into and sell out of venues is essential to heading off the threat of rationalisation. One opportunity, from a glass-half-full perspective, is that a market seeing 20% venue churn presents significant potential for new trade. Suppliers that can identify and target the emergent demand can head off future margin erosion.
The human at the centre of the sale must not be forgotten either. Clear progression and career pathways are key to retention, and an interruption to personal development for the individual means an interruption of the passion they bring to the job every day. Suppliers and operators alike must continue to invest in those at the front of the industry; to upsell, to enhance the visit, and to deliver much-needed productivity gains in a now more costly workforce.
Suffice to say, there are difficult decisions to be made, but an enthused, effective and adaptable workforce is an essential resource for the challenges ahead. The fabric of the sector may be strained, but it is still strong—and that strength comes from the genuine human connection it facilitates. As such, the Government and industry need to place people at the forefront of strategy and support. Because the only future more worrying than the industry losing sites, is the industry losing its spark.
For valuable insights and a clearer understanding of the current state of the hospitality industry, reach out to CGA’s expert team here.
