Cost-of-living crisis and staff shortages threaten £36bn hospitality and leisure growth

• 77% of hospitality and leisure businesses are confident of growth in 2022 following a bumper start to the year, predicting a 30.5% rise over pre-pandemic revenue
• This equates to a £36bn rise in annual revenues over 2019, and £54bn over 2021
• However, projected growth could be stifled as some supplier costs rise by almost 40% year-on-year and more than nine in ten businesses struggle to recruit staff
• Delivery drivers, housekeeping staff, kitchen staff and bar staff all set for pay rises this year, as operators scramble for talent 

The hospitality and leisure sector’s post-pandemic recovery could be severely hampered by the cost-of-living crisis and a widespread lack of staff, a new report warns today.

“UK Hospitality’s Next Challenge”, a study¹ from Barclays Corporate Banking, shows that the release of pent-up consumer demand for socialising, holidays and experiences following the pandemic has given a boost to the sector. Over three quarters (77%) of H&L operators are confident of growth this year, and had predicted an average 30.5% uplift in revenue compared with pre-pandemic levels. This equates to a £36bn² rise in annual turnover over 2019, and a £54bn increase on 2021.

However, the predicted growth could be stifled by soaring supplier costs and a scramble for talent. Hospitality and leisure businesses report that their transport costs have already spiked by over 38% year-on-year on average, and their utility bills by 37%. 

Meanwhile, over nine in 10 (94%) hospitality and leisure businesses are struggling to recruit personnel, with vacancies for cleaning staff (20%), front of house staff (18%), and delivery staff (16%) causing the most issues. There are particularly acute shortages of cleaners in the East Midlands and the East of England (28%).

Almost a fifth (16%) of bars and restaurants are finding it difficult to hire waiting staff, and over two fifths of gyms and leisure centres (42%) cannot find fitness instructors. Recruitment issues also extend to back-of-house and C-suite roles: 17% of operators are having trouble sourcing finance staff and 16% said the same about senior management positions.

In response, H&L operators are establishing new incentives to recruit and retain talent. Permanent flexible working arrangements (23%) are the most popular measure, followed by an increase in staff welfare budgets and the introduction of bonuses (both 22%).

Almost one in five employers (19%) have also increased wages given to staff. Senior managers are set to receive the biggest boost to their pay packets, with an average increase of 7.7% - equivalent to £2,014³ a year for a full-time worker.  Delivery riders and drivers will receive an average increase of 7.5% (£1,616 per year for a full-time worker), followed by housekeeping staff (7.4% / £1,642), bar staff (7.3% / £1,145) and finance staff (7.3% / £1,936). Kitchen staff will receive a 6.9% rise on average, equivalent to a salary bump of £1,196 for a full-timer.

One striking finding of the research is the industry’s plans to offer employment to Ukrainian refugees. Support is particularly high in Northern Ireland, where 88% plan to hire refugees, as well as in the East of England (87%) and Scotland (86%).

Barclays’ report also shows that, for the time being at least, the industry’s finances allow for pay rises and other investments. Profit margins are now at 41.3% on average, compared to 39.1% pre-pandemic. Caravan parks have enjoyed the biggest rise in profitability, from 37.1% in 2019 to 48.0% today.

Mike Saul, Head of Hospitality and Leisure at Barclays Corporate Banking, commented: “The hospitality and leisure industry was undoubtedly one of the hardest hit by prolonged periods of lockdown during the pandemic. In the early part of 2022 however, in a society free from restrictions, the sector enjoyed strong sales, leaving many confident about their growth prospects.

“The worsening cost-of-living crisis is now a serious threat to that growth, with the latest Barclaycard Consumer Spending Index showing that restaurants, bars, pubs and clubs have all seen a slight decline in May 2022, compared to the month before.

“Crucially for the industry, our research shows that talent shortages are also a major concern, with businesses in every vertical finding it challenging to fill their vacancies. It means there is now an added imperative for hospitality and leisure firms to find new and novel ways to recruit, reward and retain their staff.”

Another key result from the research shows that almost a quarter (23%) of hospitality and leisure firms are offering more sustainable products and services than they were before the pandemic, and 32% say that an increased focus on sustainability has been their biggest learning from the past two years. To counter rising costs, 23% of businesses are applying price rises to less sustainable or ethical products.

Other notable findings from the “UK Hospitality’s Next Challenge” report include:

• Over a third (34%) of firms have invested in new customer relationship management (CRM) technology to offer a better customer experience, while 32% have started opening earlier.
• Two in five (38%) have started accepting new payment methods, such as Apple Pay and Google Pay and almost half (45%) of restaurants have introduced additional payment terminals, as have 42% of pubs.
• Almost one in three (30%) restaurants continues to diversify by introducing home delivery options, such as meal kits
• A quarter (26%) of H&L operators say they are selling more ‘value’ product ranges this year, followed by 23% who say they’re selling more locally sourced produce.