Hungry for success: Hospitality after Covid-19

It is no secret that the past two years have been a desperately tough time for UK hospitality. Pubs, restaurants and hotels all struggled to stay afloat following a string of lockdowns interspersed by frequent changes in the rules.

Depending on which month it was, a venue might have been required to close by 10pm, admit guests only if they ordered a ‘substantial meal’, open outdoor areas only, limit itself to deliveries or stay entirely closed. While businesses rose to the challenge admirably, thousands lost their jobs and many businesses were unable to survive. During the first year of the pandemic, when the trading restrictions clamped down the hardest, UK hospitality lost a staggering £80.8bn in sales. This figure, from the UKHospitality Quarterly Tracker with CGA, amounts to a 64% year-on-year drop and breaks down to a loss of £220m every day.

“Parts of our sector have seen very low levels of revenue and trading since early February 2020, and we have sadly lost 10,000 businesses,” says UKHospitality CEO Kate Nicholls. “We’ve been hit first, hit hardest and hit the longest, as it will take time for international tourists and business travellers to come back and start using hospitality in any meaningful way.”

The new normal

Even once ‘freedom day’ came and went and businesses were allowed to resume trading, normal service seemed like a distant dream. The first big hurdle was the so-called ‘pingdemic’, during which thousands of hospitality staff were ‘pinged’ by the NHS Covid-19 app and unable to come into work. At one point during the summer of 2021, six in ten hospitality businesses had staff self-isolating and four in ten were forced to fully or partially close their premises.

These staff shortages were exacerbated by a voluntary exodus. Since the start of the pandemic, thousands of people left for industries they perceived as more stable, while many European workers departed in the wake of Brexit.

Although hospitality did witness some recovery during the autumn months, the arrival of the Omicron variant dealt a blow to festive trading. Normally, December is the busiest month of the year; according to UKHospitality, it is responsible for 25% of the industry’s annual revenues. But with a fearful public avoiding pubs, hotels and restaurants, sales plummeted by 40% compared with December 2019.

“The government’s strategy was predicated on allowing unrestricted trading over the summer period, and a healthy incremental recovery in trading until December,” says Nicholls. “The sector could then look at maximising profit revenue streams, rebuilding the shattered balance sheets and building back cash reserves. That hasn’t happened. So what you’re looking at is a three-to-six- month delay in the recovery.”

A staunch advocate for the industry throughout the pandemic, Nicholls has taken on what many would see as an unenviably challenging role. Tasked with mediating between the hospitality sector and government, she has provided a sympathetic ear to businesses every day.

“They have been going through the greatest level of turmoil, the sort of devastating effect you see in real time on people’s livelihoods,” she says. “Businesses have struggled to survive, have been on the brink of collapse, have not been able to look after their teams. That has been the most challenging thing for me – to have been there as the sponge to absorb all of that, and the punchbag to allow them to have catharsis.”

A helping hand from the government

While remarking that government support can never be enough to offset that level of loss, Nicholls is not interested in blaming the government for what has arisen. In her role, she was able to engage with ministers on a weekly basis, if not two or three times a week, to make sure that the sector’s needs were recognised.

“I have to give credit to the government where it’s due – they put in place systems to make sure that they were triaging concerns from the industry,” says Nicholls. “Now, it’s always challenging to make sure that they’re always acted upon in the way that we would want. But the sector has had unprecedented access to ministers across all parts of government to try and co-create solutions.”

She adds that over the course of the pandemic there have been 15 major financial statements from the chancellor, with support for hospitality announced in all of them. For instance, at the very start of the pandemic, the chancellor provided a wage support package as well as a moratorium on commercial landlord sanctions for businesses. More recently, he announced £1bn in financial grant support.

“It’s been the first sector of the economy that the chancellor references when he looks at what is needed to get the economy through this pandemic,” says Nicholls. “And it’s clear from what we’ve seen in the ONS GDP figures that he has been right to prioritise the hospitality sector, because when the sector is open and trading, we really turbocharge economic growth.”

Her one gripe is that support could have been better tailored to the businesses most in need. Support packages were whole economy solutions – unsurprisingly so, since they were rushed out in a matter of days – meaning there was no way of prioritising those businesses in danger of collapse. In an ideal world, businesses would have received monetary sums in proportion to their actual vulnerabilities, rather than the same help across the board. That said, she describes the existing support as “immeasurably helpful”.

“There’s no doubt that the number of businesses that would have failed, and the jobs that would have been lost, would have been so much higher had it not been for the personal involvement of the chancellor in getting cash to those businesses,” she says.

Despite the support measures, some have argued that the government has not done enough for this beleaguered sector. The fact that the UK lacks a hospitality minister has become something of a lightning rod for these frustrations, with a petition calling for a dedicated minister amassing more than 200,000 signatures. But Nicholls counters that there has been a de facto hospitality minister throughout the pandemic, with ministers fulfilling that function in all but name. Responsibility is split across two departments – Business, Energy & Industrial Strategy, alongside Digital, Culture, Media & Support (DCMS) – with the two working together to support the industry.

“With all due respect, we do have a dedicated unit within the business department and a dedicated minister within the business department, in addition to the tourism minister in DCMS and the food minister in DEFRA who predated the pandemic,” says Nicholls. “All have been galvanised to work together to deliver a new hospitality strategy: a three-year plan, published in July, with measures to help the sector recover.”

Planning ahead

The hospitality plan includes measures to improve jobs and skills, reduce carbon emissions and build business resilience. It also seeks to strengthen the links between hospitality and tourism by raising the international profile of the UK’s food and drink, among other strategies. Historically speaking, a sizeable chunk of F&B demand came from tourists (5.5% in 2018, according to Visit Britain), suggesting that boosting international tourism will be key to getting the sector back on track.

As part of the UK Hospitality Sector Council, Nicholls has been instrumental in driving the hospitality strategy. The council, which is chaired by Small Business Minister Paul Scully and entrepreneur Karen Jones, is a group of industry leaders who look at ways to put the measures into practice. Nicholls is one of the council members, tasked with identifying and overseeing actions related to the commitments in the strategy. “The council met for the first time in September and again just yesterday, and in the intervening period there have been groups working at pace to deal with the issues that have been identified as part of Omicron,” says Nicholls.

So, as the threat of Omicron dies down and the UK attempts to learn to live with the virus, what will it take for the hospitality industry to chart a path towards normality? Nicholls believes that the lifting of the UK’s remaining Covid-19 restrictions, along with the eventual return of international travel and tourism, will put the industry in a good position.

That said, there is a fly in the ointment – namely the ongoing cost of living crisis, which may well suppress consumer demand as households tighten their purse strings. On top of that, the industry faces a crunch at the end of March, when VAT rates climb from 12.5% to 20% and the 66% relief on business rates comes to an end. For that reason, industry bodies like UKHospitality are pressing the chancellor to intervene.

“We’re keeping pressure on the government to retain that lower rate of VAT, so that we can keep prices as low as possible to consumers and avoid an inflationary spiral,” says Nicholls. “Inflation is challenging hospitality and will cause some headwinds for the sector to grow into. That said, the steps we are taking to live with Omicron mean that we can be cautiously optimistic that the recovery starts here.”

Although the past two years have been the most challenging on record for hospitality, as the world moves into a new season of the pandemic, we can clearly see green shoots ahead.