What does 2014 hold for hoteliers, restaurateurs and foodservice caterers? Caterer and Hotelkeeper spoke to the industry experts find out
A mood of optimism is undoubtedly pervading throughout the hotel sector, but hotel consultant Melvin Gold warns against over- exuberance.
“While there are definitely signs of greater optimism as a result of more transactions in the marketplace and improved occupancies and rates, I would suggest that hoteliers need to manage their businesses very carefully,” he says.
“Business levels outside London, in particular, will be much more positive, but there is a cloud on the horizon of a possible rise in interest rates. Hoteliers should be wary of any rise, either this year or next, and take it into account when considering investment plans.”
Following on from last year’s major transactions, in which Malmaison and Hotel du Vin, Principal Hayley and 42 Marriott hotels changed hands, Gold said 2014 should see the unlocking of deals involving De Vere Venues, possibly Q Hotels, Puma Hotels and Somerston Hotels (a major franchisee of the Holiday Inn and Holiday Inn Express brands). The latter three are a result of the unstable Irish banking situation.
“There is always ground for optimism when portfolios move into new hands, as the new owners are likely to invest in the business and make them punch harder and more competitively in the marketplace,” explains Gold.
Meanwhile, Liz Hall, head of hospitality and leisure research at PwC, says that continued economic recovery will mean “sustained and enhanced prospects” for hoteliers in 2014, with new openings remaining relatively high, especially in London.
“London has continued to soak up all the new supply that has opened through 2012 and 2013, and no doubt it will in 2014 as well when a further 6,000 rooms and some exciting new brands open,” she says.
“In the regions, while there remain pockets of oversupply with budget chains adding to hoteliers’ pricing pressures, many cities have performed very well. But it does mean a more crowded UK hotel landscape.”
Hall expects to see stronger pricing and record revenue per available room (revpar) in London. “It looks like occupancy, average daily rate (ADR) and revpar are heading in one direction, with the right kind of growth to keep London on its upward trajectory in 2014,” she says.
She also expects the outlook for the regions to be positive, with PwC expecting ADR to reach almost £60. This is still below the 2008 peak, even in nominal terms, but the best result since 2009, with revpar growth of 1.8% up to £42.50 – again, the best result since 2008.
RESTAURANTS AND PUBS
The economy may be improving, but don’t expect customers to just open their wallets as a result. That’s essentially the message from foodservice analyst Peter Backman, who warns that consumers will still be feeling the post-recession hangover in 2014.
“The economy is moving up and improving and the economists tell us this is likely to continue for 2014 – that’s the good news. The not-so-good news is that consumers don’t have more money in their pockets, or if they do, they don’t necessarily feel as if they have, nor do they want to spend it,” he says.
That means that while people will still go out and eat – and may even go out a little more often – the amount they will spend is still constrained. In prime position to benefit from the situation is the casual dining sector. As Backman says, it has already done so in 2013, because branded chains, including pubs, which are also significant players in the casual dining market, can keep prices down. But Backman predicts that independent operators will have a harder time.
“The lesson for independents is to make your offer distinctive. And it has to offer value. Value doesn’t necessarily mean low price, but it means that whatever the customer spends, they have really got to feel that their hard-earned money – which they don’t really want to spend – is being well-deployed,” he says.
Foodservice industry consultant Chris Stern expects corporate clients who have so far resisted increasing tariffs to do so in the future as a result of consistently increasing food prices – unless they increase their subsidy.
“Caterers have done a sterling job, but there’s only so much they can do to hold costs,” he says.
The prevalence of total facilities management contracts also looks set to continue in 2014, although Stern says that some clients could back away from them as they mature.
“There are bound to be one or two who realise that it can be too big a beast to manage and that they lack granularity in reporting,” he says. “As catering is high profile and the only service that staff have to pay for directly, I can see it being treated separately in many cases.”
Several of Stern’s clients have recently expressed an interest in using catering to support their “great place to work” and “good employer” initiatives, often introducing free services, such as fresh fruit or cold drinks.
“There is sometimes a lack of focus here, and firms can end up giving away unhealthy snacks, but lots seem interested in the ‘Google model’ [ie, free everything], so this is one to watch,” he predicts.
It promises to be another record-breaking year for UK tourism, according to tourism agency VisitBritain. Its confidence stems from the fact that the government has committed to a further £90m in funding for its ‘GREAT Britain’ marketing campaign over the next two years.
VisitBritain’s forecast of an increase of nearly 2% in overseas visitor numbers will result in record-breaking visitor spend of around £21.5b, representing growth of 4.2% in nominal terms. Additionally, it predicts that the volume of visits will return to pre-global financial crisis record levels of 2008, with 32.6 million arrivals in 2014.
Meanwhile, Hotels.com expects more Chinese travellers to visit the UK after George Osborne announced plans in October to streamline and simplify the visa application process. His new pilot scheme will allow selected Chinese travel agents to apply for UK visas by submitting the EU’s Schengen visa form, rather than two separate applications. While a date for the scheme is yet to be announced, the move could help make the UK an more attractive destination for Chinese visitors.
While the fall in average prices in the hotel, restaurant and pub market was arrested in 2013, transactions were still relatively limited. But property agency Christie + Co predicts that there will be much more transactional activity in 2014.
It expects that banks will contribute to much of that activity, one way or another, with more business coming onto market as the pace of compensation payouts from interest rate swaps increases. It also says that banks will dispose of non-performing loan portfolios, which contain as much as £12b worth of hospitality businesses.
Hotels: David Rugg, chairman of Christie + Co, sees reasons for hotel operators to be cheerful, despite the growing threat of the online travel agents’ (OTAs) grip on pricing. “The extent of this confidence will depend on the levels to which the banks are inclined to take part, but the transactional environment will see some further upturn as more consolidation looms and further brand roll-out through franchise modelling takes place,” he says.
He adds that demand from cash investors, and the improving economic situation, should see the potential for “selective hotel value increases”, even if the trading market remains on the flat side.
Pubs: It was a positive year in the pub sector, with average prices for transacted businesses increasing and the number of sold pubs remaining. But Rugg urges caution, as although trading improved in general terms, the better results were in London. “Distress disposals continue to be something of a way of life and we should not expect Bramwell Pub Company to be the last word, particularly with the banks’ loan disposal programmes,” he says.
Restaurants: Dated independent restaurant concepts will find themselves under further pressure in 2014 as branded restaurants extend their growing influence out of London and into the regions. “If independents are to survive and thrive, many will need to work hard to maintain their loyal customer base or seek to explore opportunities to expand their local brands more regionally.
“Whether independent operators and smaller regional groups can keep pace and compete with the power of the private equity-backed brands will be interesting to observe,” Rugg says.
Restaurants: The pace at which hospitality businesses adopt new technology is set to increase in 2014. Will Hawkley, director in KPMG’s Leisure Advisory Group, warns that pub and restaurant operators must embrace those technologies to be successful. In particular, he urges them to analyse their customer data more effectively to generate long-term relationships with their customers.
Hawkley predicts that consumers will become comfortable with cashless technology. “The mobile phone companies have joined to develop a universal mobile payment platform, and the major banks will be launching their mobile payment platform, Zapp, in 2014. Operators who want to succeed need to be ready to accept mobile payments sooner rather than later,” he says.
Mobile booking: While mobile ordering apps make their way into restaurants, Hotels.com predicts that mobile hotel booking apps, already surpassing 25 million downloads in 2013, will make the leap to private cars in 2014.
The apps will fuel spontaneous hotel stops as drivers will be able to book a hotel through a controlled, hands-free app on the car dashboard. Of course, Hotels.com has launched its own app offering this service, which is to be compatible with Ford’s SYNCAppLink.
This year will see the hosting of the World Cup in Brazil, so it might be a good time to add Brazilian favourites like caipirinhas and cassava to the menu.
At home, the growing profile of cycling, along with the recent successes of British riders Chris Froome, Sir Chris Hoy and Sir Bradley Wiggins, is expected to help increase the number of visitors to the country. Yorkshire will kick off the Tour de France, which is likely to bring in excess of £100m in economic benefit to the region, according to Welcome to Yorkshire.
Elsewhere in the UK, Glasgow will enjoy a significant economic boost as the city hosts the Commonwealth Games in the summer. With more than one million tickets available for the 250 medal events, and millions of sporting fans watching the Games at home, Glasgow could see an extra 100,000 visitors and a £30m increase in tourist spend in the three years following the Games, according to Hotels.com.
Food prices are expected to rise more slowly in 2014 than 2013, but will still run ahead of the consumer prices index (CPI) measure of inflation. That’s the forecast from procurement specialist Prestige Purchasing, which predicts a rate of food inflation of 3.8% for the coming year. In 2013, it ran at 4.2%.
Although the slowing of food inflation offers some good news for caterers, with the prices of chicken and pork in particular expected to drop, the 2014 rate of food inflation will be considerably higher than the CPI measure of inflation, which currently stands at 2.1%.
David Read, chief executive of Prestige Purchasing, says: “Unpredictable weather patterns caused by climate change, an ever-increasing global population, rising production costs, commodity futures trading and water scarcity is putting a lot of pressure on food prices around the world.”
TOP 10 PREDICTIONS FOR THE RESTAURANT AND BAR MARKET IN 2014
1 Expect more “pop-ups” and mobile units as the demand for street food continues to grow and restaurants seek to make their food ever more exclusive and harder to get.
2 Gourmet fast food still has scope. In the wake of burgers last year, expect similar trends such as chicken wings or ribs.
3 More single-item menus will appear due to younger diners wanting to try a restaurant’s “best” dish. Restaurant menus will feature only one or two items,
but do them very well.
4 Pub food is on the up. Pubs whose food offer improves will see a growing average spend per customer, even in comparison with restaurants.
5 There will be more restaurants opening in retail stores as businesses look to increase footfall and maximise the amount of time customers spend under one roof.
6 Expect fewer discounts. Operators are becoming more and more concerned with improving margins, so discounts will slowly but surely diminish.
7 Customers will demand ever more transparent provenance and sourcing quality. Dishes containing ingredients with protected designation of origin will be especially sought after.
8 UK consumers will continue to demand healthier options as certain sections of the country look to control their weight. This is especially true for lunchtime choices.
9 This could be the year when capital markets rediscover the restaurants and bars sector. There are likely to be more flotations and interest from private equity houses.
10 Economic adviser BDO predicts that 2014 will see continued merger and acquisition activity.
Source: BDO Restaurants & Bars Report, December 2013