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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.
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 22% of all hospitality outlets will not be open by the end of 2020.
The long-term growth forecasts for the industry are 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.
The report has been produced by Simon Stenning, founder of FutureFoodservice, forecaster, analyst and commentator on the UK hospitality and foodservice market.
Stenning says: “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.”
He pointed out that the fall of £23bn in 2020 alone implied a fall in VAT revenue for the Government of £4.6bn, along with an increase in social costs from the loss of employment from an industry that directly employs over 3m workers.
This made it ‘imperative’ that the government provided support.
He said that as well as the economic challenges, the sector faced a major task in convincing customers venues were safe before they could ‘re-ignite demand’ for eating and drinking out.
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 chef Marcus Wareing found that 34% of consumers expected to spend less when they returned to restaurants. These insights imply severe revenue decreases for operators.
Financial modelling in the report shows that despite decreasing headcount, reduced costs and maintained margins (which would be harder with potential increases in supply chain costs), a restaurant that operated on 50% normal sales would drop to a significant loss, and only a rent reduction, rates holiday and drastic salary cuts would 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.
“There will also be the expected increase in unemployment dragging down consumer discretionary spending, whether physically reduced, or through exercising more caution.
“All together, these economic effects will mean that many sites won’t re-open, or will fail within a few months. We forecast that 22% of all hospitality outlets will not be open by the end of 2020,” said Stenning.
The easing of lockdown restrictions would likely see a reduction in travelling and commuting by public transport and more working from home, together with dramatic falls in in-bound tourism. As a result, certain sectors of the market would fare better, including fast food, which would 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 to 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 (artificial intelligence).
“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, we will see the biggest paradigm shift, as technology solutions that reduce staff contact will now be embraced by both operators and consumers,” said Stenning.
The report is available to buy, visit: www.SimonStenning.com