UK: Torrid market and weather conditions take their toll on hospitality and leisure
Consumers carry on camping
The increase in hotel failures reflects both the cyclical nature of the industry and the extremely difficult trading conditions experienced in some markets often due to an increase in new supply.
UK hotel performance has seen a slowdown in demand in the second half of the year when trading seems to fall off a cliff.
The trend is likely to get worse from Q4 2008 onwards as the combined impact of a reduction in business travel, conferences and leisure result in reduced demand and lower profitability.
Stephen Broom, H&L director, PricewaterhouseCoopers LLP, said:
“As the downturn tightens its grip, it is easy to believe what we have seen so far is just the tip of the iceberg for hotels. Although hotel insolvencies have increased by over 150% from the end of 2006 to October 2008 there will be further failures in 2009 when the full impacts of reduced demand will be felt.”
However, hotels have seen very good trading in recent years and some go into this recession from a relatively strong position. Intuitively, well managed groups with attractive products, brands and properties in prime locations can continue to win market share over the next 18 months.
“Most hotel businesses are entering this recession far better equipped to cope than was the case in the early 90’s recession. For example in addition to the availability of highly sophisticated rooms yield software, hotels have the benefit of access to multi channel distribution systems that allow the operator much greater flexibility in terms of pricing and most importantly speed of reaction to changing patterns of demand,” he added.
Please sir, we want some more customers
Despite the fact that with more choice, more affordability, and the UK eating-out culture that developed through the boom years, restaurant insolvencies have increased by 95% from the end of 2006 to October 2008.
Squeezed consumer incomes, both from high inflation and worsening economic conditions, means that discretionary spending in hotels and restaurants is likely to fall sharply as consumers cut down planned expenditure. Efforts to persuade consumers to leave their homes evidenced by the plethora of special deals from operators will impact revenues and ultimately result in lower profitability.
“There is no doubt looking at these statistics that we are now amidst a consumer slowdown. As the situation is likely to get worse in 2009, experience from previous recessions tells us that consumers will trade down seeking value for money options whilst also seeking a memorable experience. Many more expensive high end restaurants will continue to struggle as they will see fewer corporate and leisure consumers.”
No smoke and all fire
The pub and bar trade are continuing to experience some of the most difficult trading conditions of recent times. The cumulative impact of the 2007 smoking ban, two wet summers, a failure to qualify for Euro 2008, increased home consumption and now the consumer downturn, have proved to be too much for many, with 64 businesses going under this quarter, an increase of 156% since the back end of 2006.
“There are no surprises that in the last year pub insolvencies have increased by 113%. The majority of pubs suffering distress are wet-led community pubs losing out to supermarkets. Some have also found the competition from well known pub chains has had a detrimental effect as brand and familiarity become more important to consumers when personal expenditure is under pressure,” he concluded.
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Hospitality and Leisure Senior PR Manager
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