You do not need to be a leading economist to understand the damage the current economic climate could pose for the UK hospitality sector.
Just as the industry was beginning to emerge from the fog of the Covid-19 pandemic, 2022 brought about a fresh set of challenges. Inflation has just hit a 40-year high of 9.1%, whilst energy prices have reached record levels. Not only has this increased the overheads of hospitality businesses, but it has also reduced consumer spending power. This will likely, in turn, result in falling demand for the services offered by cafes, restaurants and bars.
The industry is clearly struggling, which has in turn prompted calls for the government to step in and help. After all, one could infer that it is in the interest of the wider economy to offer more support for the industry, considering that in 2021 alone, hospitality helped the UK economy grow by 4.8%.
All of this begs the question – if the government were to step in, what support should they offer?
A call for support
To understand the hospitality sector’s considerations of support, Peckwater Brands conducted a survey of 200 senior decision-makers within hospitality businesses. And perhaps unsurprisingly, the majority of their demands were centred around finance.
Indeed, almost two-fifths (39%) of survey respondents want the government to offer financial support packages to hospitality businesses to help them weather the economic storm. Elsewhere, over a third (36%) called for business rates holidays for struggling organisations, and a similar number (35%) want the government to subsidise energy bills.
Other organisations wanted the government to offer incentives to tempt consumers into their venues. For example, almost a quarter (23%) of hospitality decision-makers wanted the cost of alcohol to be subsidised, whilst 34% thought a scheme similar to the ‘Eat Out to Help Out’ initiative would benefit the sector.
The above suggestions are all arguably valid approaches to helping the sector’s recovery. However, such schemes are unlikely to occur overnight. Given that the government borrowed £323 billion to provide support throughout the pandemic – the largest sum it has ever bowed in peacetime – it is unlikely that ministers are going to commit to any major financial changes.
This will admittedly be challenging for hospitality businesses, and their frustration is evident; Peckwater Brands’ research found that almost two-thirds (64%) of industry leaders feel abandoned by the government.
Such figures paint an admittedly dismal picture for the future of the hospitality industry. However, all is not lost. Throughout the pandemic, organisations within this sector have proved themselves to be flexible, and willing to review and adjust their operations in order to survive in the long term.
Profitability in flexibility
A separate survey from Peckwater Brands, conducted earlier in 2022 revealed that throughout the Covid-19 pandemic, three quarters (75%) of hospitality organisations began offering takeaway services in order to survive whilst the same number (75%) also conducted an analysis of their business to identify where improvements can be made.
Such figures highlight the willingness of the UK’s bars, restaurants and cafes to be flexible in their business offering to meet the circumstantial change in consumer demands.
However, this economic climate calls for hospitality businesses to be creative once again, and consider new methods with which they might be able to keep their overheads low, whilst increasing their turnover. Innovative solutions are hospitality’s best chance of helping themselves when outside help is unavailable, and virtual brands are one approach that could help.
Virtual brands are food brands which exist solely on third-party delivery platforms (e.g. Deliveroo, JustEat or UberEats), and can be set up in any functioning kitchen with surplus capacity. They operate entirely independently from the original brand, providing an excellent opportunity for hospitality businesses to make use of idle equipment, ingredients, and other resources, whilst widening their customer scope through a different menu.
So, for example, a chicken shop with spare capacity could adopt a Mexican virtual brand into its operations with minimal disruption; it already has a key protein, and may simply require a few additional, inexpensive ingredients to fully adopt the new menu. Other than that, no other costs for staff or equipment are needed, thereby creating minimal additional overheads.
This innovative business model is also profitable, with hospitality businesses reportedly making an additional £12,000-£57,687 each month since taking on a virtual brand. This just goes to show adopting new and innovative practices can pay off for hospitality businesses.
This is a strange and challenging time for hospitality businesses, and many are understandably calling for further government support to help them weather the storm. That said, such generous packages seem unlikely to appear in the immediate future, and once again, hospitality business owners will have to rely on themselves.
As such, I urge hospitality businesses to explore different options to help them increase their turnover, and virtual brands could certainly provide a partial solution to this. The key is for hospitality organisations to remain flexible and open-minded in the months to come. And in doing so, I am cautiously optimistic that the industry will be able to commence upon the road to recovery.
Peckwater Brands (PWB) is a delivery franchising expert, which helps restaurants and kitchens of all sizes benefit from the fullest demands of the market by streamlining the process of embracing virtual brands and multiple-franchise solutions.
Working with partners across the hospitality spectrum, they can transform any kitchen into a multi-franchise operation, integrating with their existing operations and opening them up to vastly increased demand across different brands and cuisines. Sam worked in executive positions at Uber and Amazon before co-founding PWB in 2019.