The hospitality and leisure industry has always had to be adaptive but never more so than in the last four years.
In this article, we get insight from one of our clients, a long-standing family run business within the hospitality industry, on some of the pivots they’ve had to make in response to the challenges in recent years, and what they think is prevalent in the near future.
Hospitality sector headlines
The Guardian reported that January 2024 saw record numbers of people taking part in Dry January (and beyond), coupled with approximately 25% of younger people deciding not to drink alcohol altogether. Supermarket giant Tesco published extraordinary year-on-year growth of 40% in low or no alcohol options. While this may be initially troubling for pubs, bars and hotels, it does produce an opportunity to offer a broader range of 0% options, on which margins can often be higher compared with their alcoholic counterparts, as no duty is charged.
Duty changes came in from 1 August 2023 with general increases across the board, other than for some low ABV products, pushing the agenda to reduce drinking habits. This has presented some opportunities for businesses who produce low ABV beers and ciders, benefitting from a 9.2% discount, however some higher volume items have seen inflationary increases at 10.1%. In some cases, this has pushed brewers to move towards lower ABV products where possible to benefit in these savings.
Supply side shortages and inflation are anticipated due to the ongoing shipping crisis in the Suez Canal, with many merchant ships rerouting via South Africa rather than taking direct means. Meats and staple goods coming from Asia and the South Pacific should not suffer from spoilage however fresh goods may be impacted. Sky News reported that shipping costs have risen more than 300% since November 2023 and will ultimately impact the end cost to the consumer.
Brexit stalled immigration and with upcoming measures to reduce numbers further (by 300,000 a year), continued challenges lie ahead. Alongside this, the minimum salary that will need to be paid to a skilled worker on a visa will increase from £26,200 to £38,700 from 1 April 2024. Businesses will need to be focused on retention and creating innovative ways to cope with demand in the face of labour shortages.
Using technology to overcome business challenges
We have seen many businesses across the sector pivot themselves in response to challenges since the pandemic and technology has been a large contributor to their successes. Some examples have been:
- Using AI to determine appropriate purchasing, setting pricing such as room rates and assessing customer behaviours to improve margins and overall profitability,
- In the face of labour shortages, it has been key to try and maintain customer service to the same levels. Introducing things like contactless check in/out and using phone apps to make reservations have allowed hospitality businesses to continue offering the guest experiences needed,
- Making use of virtual reality to allow customers to view and experience rooms, restaurants and grounds of an operator in advance of making their bookings, and
- Installing energy efficient items such as renewable energy, efficient lighting systems and smart technology to reduce ever-increasing utility bills.
In conversation with Wadworth Brewery
Based in Devizes, Wadworth Brewery was founded in 1875 and currently holds just over 150 pubs across the South West of England.
In 2023, the company decided to relocate their operations to a new purpose-built brewery to benefit from newer brewing equipment with the latest technology. Given the age of the new brewery, it’s also significantly more efficient on utility spend, and has allowed the company to offer more variety to its customers.
We caught up with Toby Bartholomew, Managing Director at Wadworth Brewery, to discuss the importance of embracing technology and overcoming challenges in the sector.
What challenges have you faced in recent years and how have you used technology to help overcome these?
“Covid presented its challenges with outdoor eating only and no cash payments. In response to this, we implemented an order and pay app, which helped restrict the interaction between customers and the team. However, we reflected on this coming out of Covid and felt that personal interaction is important, and so reverted back to taking orders via iPads to speed up the process.
“Additionally, we also implemented a new booking system which speeds up the process for the customer, reducing the amount of time spent by the team on the phone and increasing the amount of time spent with the customer.
“We implemented a review system tool that pulls together online reviews across our managed pubs into one place so we can respond more quickly to our customers and get greater detailed feedback to notice trends.
“The new brewery automation and efficiency in technology has allowed us to move forward brewing capabilities and flexibility in what we brew.”
How has this helped to improve business performance?
“All these alterations have helped focus us on efficiencies within pubs, for example sales per labour hour metric. Every cost was analysed coming out of Covid and we learnt a lot.
“The set up and operation of the Pub was reviewed and table service, bar order only, or mixture of both were considered and implemented across the portfolio as we thought best.
“Our new brewery which we built during 2022-2023 has saved a huge amount of operational cost in terms of utilities, resource and waste.”
Has it provided any new solutions for your customers?
“It has created more flexibility for customers and hopefully improved the guest experience. We can brew different beers which gives more choice to the customer. It will also allow our tenants to have a wider range of Wadworth beers to choose from and a greater change in range.”
What challenges do you see the hospitality industry facing in the near future and how will your business adapt to these, in particular with the use of technology?
“Inflation has shown how flexible we need to be with pricing and understanding impacts on margin. We have the option to implement much more advanced stock systems in the future, but this also requires a culture change for the teams.
“AI is obviously making its mark on the world, and we must understand how best to use it for our industry – we are looking to upgrade our accounts system in the next 18 months, and the upgrade has AI efficiencies built into it.
“For hospitality entrepreneurs, it has never been more important to embrace new technologies to navigate the challenges that the sector faces and ultimately this is likely to be a determining factor in those businesses that succeed.”
How we can help
Growing demands for technological solutions in the hospitality sector come with potential tax benefits, from Research & Development Tax Credits on spend on qualifying technological advancements to first year allowances on energy efficient items. We can help identify where these tax savings may be relevant for your business.
If you’re a hospitality entrepreneur and need support on any of the issues discussed in this article, please get in touch with Anna Schwarz, Director in the Business Advisory and Assurance team for further guidance.
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