Hospitality faces mixed fortunes amidst economic challenges

By James Bayley

Published: 19 June, 2024

The UK hospitality sector continues to experience a turbulent period, as highlighted by a series of reports and statistics. Despite significant challenges, the industry demonstrated resilience with a notable year-on-year sales growth in May 2024.

Growth amidst adversity

The latest CGA RSM Hospitality Business Tracker revealed that Britain’s leading hospitality groups achieved a 3.6% increase in sales in May 2024, rebounding from a 1.7% decline in April. This growth is particularly impressive given the challenging weather conditions across the country. The report, produced by CGA by NIQ in collaboration with RSM UK, indicated that the pub sector led this growth with a 4.4% increase, followed by restaurants at 3.8%. However, bars and the on-the-go segment saw declines of 2.7% and 1.6%, respectively, although these figures represented improvements from April.

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Karl Chessell, a director at CGA by NIQ, said: “May brought a relief to return to above-inflation growth in hospitality after a blip of negative numbers in April. Wet and cool weather continues to work against pub operators, but they and restaurants may be starting to feel the benefit of a relaxation of spending among some consumers, especially over occasions like Bank Holiday weekends.”

Regional performance and economic impact

London outperformed other regions for the fifth time in six months, with sales inside the M25 increasing by 4.1%, compared to 3.5% growth outside it. This indicates a stronger recovery and higher consumer spending in the capital.

Saxon Moseley, head of leisure and hospitality at RSM UK, welcomed the return to growth but expressed concerns about the sector's ongoing struggles: “A return to growth in May is welcome news but the sluggish gains since April’s minimum wage increase means that many operators will be struggling to absorb this additional overhead,” Moseley said. He emphasised the need for governmental support, including rates reform, reduced VAT, and improved access to skilled workers.

Rising insolvencies

Despite the growth in sales, the sector faces significant financial distress. Data from RSM shows a 27% increase in insolvencies within the accommodation and food services sector from April 2023 to April 2024. The monthly increase for April 2024 alone was 11%. Moseley pointed out that April was the first month operators had to deal with the increased national minimum wage, exacerbating financial pressures.

A separate analysis by money.co.uk highlighted that the accommodation and food services sector experienced the highest rise in insolvencies among all UK industries in 2023, with a 37.8% increase. This surge is attributed to escalating energy costs and reduced consumer spending due to the cost of living crisis.

Future outlook

While the hospitality sector shows signs of recovery, particularly in sales growth, its underlying financial health remains precarious. The impending general election and economic uncertainties are pivotal, with industry leaders calling for decisive government action to support the sector.

Chessell expressed cautious optimism, hoping for brighter summer weather to boost consumer spending further. Meanwhile, Moseley highlighted the sector’s urgent need for policy reforms to ensure sustainable growth and stability.

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