Hospitality leaders' confidence rises but soaring costs threaten fragile businesses

Leaders of Britain’s top managed hospitality groups remain cautiously optimistic about the future despite spiralling costs, the 2023 Business Leaders’ Survey from CGA by NielsenIQ and Fourth has revealed.

The poll found that 47% felt confident about prospects for their business over the next 12 months, which was a strong recovery from 29% in CGA’s last survey three months ago, while 20% admitted to feeling pessimistic.

Thirty per cent felt confident about the eating and drinking out market, significantly higher than the 8% recorded in the previous survey, but still some way off the 65% that was recorded in January 2022.

And despite exceptionally difficult trading conditions, 84% said their business operated at a profit last year, and 51% were more profitable than in 2021.

However, many businesses remained extremely vulnerable after three years of disruption from Covid-19 and fast-rising costs, and 14% said their business was at risk of failure in 2023.

Nearly all leaders said they had experienced higher costs in food and drink (96%), energy (91%) and front-of-house labour (91%), leading to average increases of 12% and 10% in food and drink menu prices respectively in the last 12 months.

Four in five (81%) wanted to see a cut in hospitality’s rate of VAT, and significant numbers would welcome help with business rates reform (61%) and more generous support on energy costs (46%).

Karl Chessell, CGA’s director – hospitality operators and food, EMEA, said: “After battling through three relentlessly challenging years, hospitality leaders are rightly upbeat about their long-term prospects. Pubs, bars and restaurants have coped admirably with the pressures forced on them, and consumers remain as keen as ever to eat and drink out when they are able. However, business confidence still lags well behind pre-Covid levels, and with few signs of respite on costs, it is very clear that 2023 will be another difficult year. Hospitality is a dynamic and resilient sector, but thousands of fragile businesses need support on tax and bills if they are to ride out these immense challenges.”

Sebastien Sepierre, managing director – EMEA, Fourth, said: “The hospitality industry remains in a precarious position, despite this survey highlighting a growth in business and trading confidence compared to late last year. Sector businesses are continuing to fight a battle on multiple fronts, contending with workforce-related challenges and soaring costs that are hitting supply chains hard. Technology plays a vital role in solving these challenges, helping businesses to engage and motivate employees, drive efficiency across the board, and identify and, ultimately, realise cost savings.”

UKHospitality chief executive Kate Nicholls added: “The optimistic attitude on show from leaders in hospitality demonstrates the resilience and positivity of our sector, even in the face of enormous challenges.

“With the cost of doing business crisis showing no signs of slowing down, there is urgent action needed to tackle the root causes of inflation and clear support among leaders for UKHospitality’s asks of government in the budget.

“If the chancellor acts to extend more energy support, reform the broken business rates system and reduce the sector’s rate of VAT, the Government can harness the spirit of hospitality businesses to see off current challenges, drive economic growth and lift the nation’s economy.”

Hospitality trade bodies have called for "significant interventions" in the Spring Budget next month, however chancellor Jeremy Hunt has already warned that tax cuts are "unlikely". JD Wetherspoon chair Tim Martin has campaigned for the industry to have the same VAT levels as supermarkets.