2015: The year ahead
What does 2015 hold for hoteliers, restaurateurs and foodservice caterers? The Caterer spoke to industry experts to find out what the next 12 months have in store for hospitality
Following a year that has seen a strong recovery by regional hotels, boosted in particular by major sporting events such as the Commonwealth Games in Glasgow and the launch of Tour de France in Yorkshire, more of the same is expected in 2015.
The year, of course, will benefit enormously from the hosting in September and October of the six-week-long Rugby World Cup in England and Wales, which will be attended by nearly three million spectators, including 400,000 overseas visitors.
Matches will be hosted throughout the country, in London, Birmingham, Brighton, Cardiff, Exeter, Gloucester, Milton Keynes, Leicester, Leeds, Manchester and Newcastle.
Continuing strong economic growth, together with increasingly buoyant business travel, is expected to see occupancies remain high, with an increase in average daily rate (ADR) driving a strong revenue per available room (revpar) resurgence. For London, PwC is forecasting a 1.5% increase in occupancy to 84%, with ADR and revpar growing by 3.6% to £145 and 5.1% to £122 respectively. Meanwhile, it is expected that this year's 3% occupancy rise in the regions to 75% - the highest for 14 years - will moderate in 2015 with a 1.6% gain taking occupancy to 76%. Alongside an anticipated 4.3% growth in ADR to £65, revpar is forecast to rise 6% to nearly £50.
Following a bumper year for hotel transactions, with several regional portfolios changing hands, it is expected that the interest in investors, especially from overseas, will not abate. There is even speculation that some owners will return to market to offload the brands they have acquired over the past two years, realising what has been a considerable growth in their investment. Malmaison and Hotel du Vin, bought by US-based private equity company KSL in March 2013, are just two brands that are rumoured to be in the market for a new owner.
In terms of new openings, while there won't be major London launches to rival those this year of Shangri-La at the Shard, Ham Yard, the Beaumont and the Mondrian, there will still be new growth, with an expected 5.3% (7,200 rooms) increase in supply to 135,000 rooms in the capital, according to PwC. Two notable openings expected in the regions include the delayed Gainsborough Bath Spa and Heckfield Palace in Hampshire, helping to boost room supply outside London by 1.7% (9,000 rooms) to 464,200 rooms.
Restaurants & pubs
The past year has been a strong one for the eating out market, particularly casual dining. Figures from foodservice analyst Horizons show that frequency of eating out is on the up again, rising to an average of 2.21 times in a two-week period, up from 1.77 times in 2013. That trend looks set to continue, says Horizons' Peter Backman, who claims that the eating out market in the UK will grow for the foreseeable future as the economy improves and consumers are less inclined to cook at home.
The fact that eating out has shifted from being a special occasion or treat to a more everyday occurrence means that the habit of buying food to eat outside the home is becoming well established, says Backman. That's particularly the case among the younger generation, whose eating out habits are even more strongly ingrained. Those aged 18-24 and 25-34 are most likely to eat out (78% and 79% of respondents in those respective age groups had eaten out in the past two weeks according to a Horizons survey). This is important because although the younger age group currently spends the least on eating out (£10.40 on average), this group represents the high spenders of the future.
And while 2014 saw a drop in average spend per meal to £12.72, down from £13.30 the year before, Horizons believes that this suggests people are interspersing special occasion meals with more everyday purchases, again suggesting that the frequency of eating out is increasing.
"Together the pub restaurant and quick service sectors now account for 79% of all eating out occasions, with quick service (at 32%) gaining share from restaurants (47%)," says Backman.
"Operators have proved themselves to be adaptable, flexible and quick to change. This looks set to continue as the consumer era continues."
It was quite an unusual situation when it came to food prices in 2014. Despite many commentators predicting a rise during the year, food prices actually saw deflation at a rate of around 1.5%, according to procurement specialist Prestige Purchasing. Sadly that trend is unlikely to continue, with Prestige forecasting a 2.03% rise in prices again in 2015.
In fact, as far as hospitality businesses are concerned, the rise could be as many as two percentage points above even that (therefore around 4%). That's because while there was a perfect set of conditions in 2014 for falling food prices - lower oil prices, good weather for crops and a strong pound - there is one more factor that works against foodservice, and that's the supermarket price war.
Supermarkets are locked in a battle to offer the lowest prices, and the traditional players like Tesco and Sainsbury's are being disrupted by discounters like Aldi and Lidl. With all those big players squeezing their suppliers for the lowest prices possible, the suppliers are forced to push prices up in other areas and as a result they are predicted to rise in hospitality.
Meanwhile, factors like the increasing global population, increasingly frequent freak weather conditions that affect harvests, and water scarcity are all likely to push prices back up.
But of course, prices for various foodstuffs are not uniform. Milk and dairy products are expected to stay low in price as a result of increased production and a reduction in demand. But cocoa consumption is growing faster than production and prices have also been impacted by the threat of Ebola hitting cocoa-producing countries like Ghana and the Ivory Coast, so chocolate prices are expected to rise.
Meanwhile the discovery of a new bird flu strain in the UK could push down production if it spreads, although this may be counteracted by a lack of consumer demand if there is extensive negative media coverage.
It would be easy for hotel owners not to have noticed that the market for selling their businesses has been steadily improving over the last two years, according to Julian Troup, head of UK hotels at Colliers International.
"With their hotels seeing the growth coming from an improving economy and freer spending customers they have had positive issues to focus on," he says.
"The market has seen consistent recovery with more competition and better bank funding availability driving speed of transactions and prices too."
Troup says there has been a significant uplift in transactional activity at corporate level, and that international private equity backed demand has seen competitive bidding returning to the UK hotel marketplace. He adds: "In terms of UK hotel trade the likes of the 2015 Rugby World Cup will stimulate domestic activity and also boost the flow of international business, both to the capital and key provincial destinations."
Colliers anticipates continued marginal growth in hotel values in London, supported by a buoyant travel market. "We have seen evidence of parties who historically focused only on the capital being prepared to cast their net further afield and look more seriously at provincial hotel opportunities," Troup explains. "We believe this trend will continue through 2015."
In terms of pubs, the market has settled down after a series of disposals by Punch, Admiral, Greene King, Marston's and Enterprise Inns. Neil Morgan, director and national head of pubs at Christie + Co, says: "Today there are very few individual pub disposals as pubcos have generally been successful in their churn disposal programmes."
He says that Christie's has seen the return of mergers and acquisitions. "We are now seeing smaller portfolios of pubs coming to the market with competitive bidding from private equity and trade buyers. We are also witnessing buyers who hitherto have not been involved in the sector looking to back experienced managed teams to acquire small to large portfolios of pubs as a platform for further acquisitions."
Morgan adds that three portfolio disposal programmes are likely to be launched in the first quarter of 2015, which is certain to create a feeding frenzy.
Foodservice industry consultant Nigel Forbes, managing partner at the Litmus Partnership, is convinced that the new food labelling legislation, which came into effect this month, will have a big impact on how companies produce food.
"Benefits will include improved dish consistency, better control of ingredient costs and staff knowledge of food provenance," he explains, pointing out that re-engineering recipes to be allergen-free offers marketing opportunities and potentially more sales.
The sector can also expect to see more of the large corporates looking to bundle their catering contracts in with their wider facilities management agreements as, according to Forbes, this will present both opportunities and threats for contract caterers, depending on what services they offer.
"Office space is increasingly expensive and clients must look closely at the space footprint of their catering services. More labour- and space-saving equipment will be introduced and the move away from traditional meal experiences to casual/grab and go food will gather pace," he adds.
"Caterers will need to continually drive more sales from the space throughout the day and we'll see more clients offer contracts as concessions and even start to review contracts on a sales-per-square-foot basis."
And while there are clients that are looking to invest more in staff catering because they promote it as a key benefit for their employees, the scenario is not yet commonplace.
Investment in technology in the hospitality sector has traditionally been behind that of other industries - a recent report by Deloitte found it had grown just 0.9% since 2008, compared with 3.1% in healthcare - yet its role will become ever more important in 2015, particularly when it comes to mobile tech and eco-friendly practices.
Along with social media, mobile technology bookings will grow, and businesses that are accessible via an app will benefit most. Mobile touches such as booking confirmation, reminders and pre-arrival information by text and alerts will also improve the customer experience. Guests will also start to demand personalisation via mobile, such as requesting which music, drinks and even room temperature they would like on arrival.
Environmental practices will be in the spotlight as apps and online booking services increasingly reward businesses with a sustainable ethos. One imminent example is Bookatable's new partnership with the Sustainable Restaurant Association, which will highlight especially eco-friendly sites.
Consumers' growing awareness of waste levels will lead to more tools predicting food and beverage demand, while establishments will be expected to reduce excess laundry and waste, and develop sustainable means to recycle or reuse in-room amenities.
Smart cards, which can hold information on consumer preferences and act as a means of payment, are likely to become more of a factor in hotels, who can use collected information in marketing and loyalty offers.
Overall, even significant technology within hospitality should be seamless, and be dictated by the customers' demands rather than exist for its own sake. Unobtrusive changes within hotels and restaurants are likely to include time-set lights that wake guests instead of an alarm; doors that unlock with phones; in-room phone docks; universal chargers; in-app ordering; smart menus that can predict your choices; and free, wireless broadband as standard.
"Keeping up with technology is no longer optional," says Deloitte in its report.
Are you ready for what 2015 has in store?
The New Year is sure to bring fresh challenges and opportunities for operators across the country. To help you prepare for what 2015 might have in store, The Caterer is working with Christie + Co to present its predictions for the year ahead. Pulling these predictions into operational focus will be a panel of hoteliers and restaurateurs to share their expectations for the next 12 months.
This breakfast briefing, being held at the Hospitality Show, will provide analysis of market movements in hotels, restaurants and pubs in 2015, along with the outlook for the hospitality sector in 2015. Our panel of experts and operators will consider where they think the sector can profit, and what opportunities should not be overlooked.
Chris Day managing director, Christie + Co
Simon Chaplin director - corporate pubs, Christie + Co
Lee Howard regional director for the Midlands and Anglia, Christie + Co
PLUS a panel of leading operators
Date 20 January 2015
Time 9am for a 9.30am start
Venue Main stage, The Hospitality Show, NEC, Birmingham
Places are limited so register now at