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Brexit three months on: could hospitality profit from it?

21 September 2016
Brexit three months on: could hospitality profit from it?

It's been three months since the UK's momentous decision to leave the European Union, and despite the predictions of doom, it seems that hospitality businesses have had a successful summer. David Harris discovers if we might profit from the loss of the EU

Brexit catastrophe anybody? It's been three months since the referendum vote and, so far, there seems little evidence of the disasters predicted. In fact, for hotels and restaurants, it's possible to argue that the reverse has happened: Brexit boom, not Brexit bust.

The chief relevant consequence in the first three months of post-referendum Britain for hospitality businesses has been the initial weakness in sterling. If there is one factor that has resulted in talk of benefit rather than penalty, then this is it.

As soon as it became evident sterling was falling, Richard Solomons, chief executive of the Intercontinental Hotels Group (IHG) predicted an increase in overseas guests taking advantage of the exchange rate and Britons choosing to holiday at home. Both have happened.

Andrew Stembridge, managing director at two of the country's best-known luxury hotels, Chewton Glen and Cliveden, agrees: "Yes, business is booming. The weak pound is making the UK more attractive, especially for USA businesses, and for keeping domestic business in the UK. Staycations were definitely dwindling last year and are back in vogue this summer."

Even so, nothing about Brexit is simple. Stembridge adds that another reason this summer has been good for business is because terrorist attacks around the world are making the UK seem relatively safe. Good for business, yes, but nothing to do with Brexit.

And it is very early days. The referendum itself did everything and nothing: it was a statement of intention rather than an immediate political reality.

Besides which, the initial benefit of weaker sterling has its downside in the increased costs of imported items, which might take a little longer to play out. And if bookings have mostly been up, that doesn't mean that some haven't taken fright and decided to stay at home.

Andrew Stembridge

The waiting game

Beppo Buchanan-Smith, owner of the Isle of Eriska hotel, says he has seen a mixture of effects: "Immediately after the vote, we had several cancellations from London families and couples for August, who simply said that uncertainty had reduced their ability to commit to being away from their businesses.

Buchanan-Smith adds that "on the expenditure front, some food costs are up", and that he has also been warned about drinks price increases to come. The hotel recently bought a £40,000 ironer from Lichtenstein which had increased 10% in price in the last two months. "Now I wish I had ordered it in June," he adds.

Beppo Buchanan-Smith

Global forces

One of the problems with establishing the causes of increases in business or costs is that there are almost always multiple reasons. Recently, for instance, purchasing company Beacon highlighted the rise in the price of smoked British bacon, of which it said suppliers had increased prices by up to 38%.It is partly about the weakness of sterling, but indirectly. British bacon has become attractive to foreign importers because it is cheaper for them, so that is one reason why that demand has started to outstrip domestic demand. But simultaneously, flooding in China has devastated the Chinese pork market, which means it now has a huge demand for overseas pork. One element is arguably down to Brexit, but the Chinese floods are certainly not.

The most seasoned commentators on the British hospitality business remain cautious about pontificating on the Brexit vote, largely because they realise that the full consequences will take time to unfold.

Veteran hotel industry consultant Melvin Gold says he has been cautious in talking about Brexit because, "Whatever you say, it is a political statement". He adds that one of the difficulties with assessing what Brexit will mean for the hospitality business is that "nothing has happened yet".

But he adds that when it does happen, he is positive about the eventual outcome: "Ultimately, I am optimistic because we are the world's fifth largest economy, one of its most attractive tourist destinations and one of its most attractive business destinations."

He adds: "The uncertainty is political. It doesn't mean that businesses have to curl up in a ball and do nothing. It is not in their nature to do that and they won't. People will carry on planning their budgets and recruiting, whatever happens."

Isle of Eriska

Immigration issues

Recruiting is arguably what has given hotels and restaurants their greatest fear after Brexit. Apart from a sense among some that the vote has run the risk of making the UK an unwelcome place for foreign workers, there is a real concern over what will happen to immigration regulations.

Buchanan-Smith says: "The greatest concern is also the greatest uncertainty, which is, given that 50% of our team come from overseas, how will they be treated when the dust settles? And will we still have access to this huge labour market? Some have already returned home and others are assessing the situation because the UK has now become less profitable as they send their hard-earned funds home."

The British Hospitality Association has also indicated that continued freedom to recruit is likely to be a crucial requirement. Chief executive Ufi Ibrahim says: "An informal survey of members found that the majority considered the continuation of the free movement of the hospitality workforce imperative to the continued success of their businesses."

This concern over recruitment is all the more acute because a shortage of key staff was apparent even before the Brexit vote, says Peter Ducker, chief executive of the Institute of Hospitality. "The problem is across the industry at all levels and is set to get worse," he says.

But it might be a time for the industry to see this as an opportunity to address an old problem in a new way. He says: "We know about the shortfall in staff and we know that a graduate debt of £40,000 is putting some people off the university route. We know that the rationale behind many apprentice programmes is becoming more compelling. We also know that our industry has been perceived as the career of last resort for too long. Now is the time, if ever there was one, to shout about the opportunities and attractions of a career in hospitality."

One thing which Brexit certainly does not seem to have done is to discourage investing in British hotels. Deals have continued, with £70m paid for the 408-bedroom Travelodge at London's King's Cross by the Hong Kong-based investment company Magnificent Real Estate, and the £80m paid by another Hong Kong investor for the 378-bedroom Doubletree by Hilton in London's Docklands. If the UK market was set to crash, clearly nobody has told these investors.

It is all part of a picture which seems to suggest that the industry has not fallen apart as a result of the Brexit vote. There has been a small, perhaps temporary boost as a result of the weaker pound, but in the longer term, that is perhaps beside the point. The real effect of Brexit, as sober heads will not tire of telling you, will come when we actually do depart, probably in 2019. And how much that will affect hotels and restaurants very much depends on how the exit is handled between now and then.

Ufi Ibrahim

Alexis Gauthier: 'I emailed our customers straight away'

Alexis Gauthier, chef-patron of Gauthier restaurant in London's Soho, reacted to the Brexit referendum in a very practical fashion. Upon realising the vote was forthcoming, he applied for and got a British passport.

Gauthier has been here for years, and he won a Michelin star at his previous restaurant, Roussillon, as well as at Gauthier, but he felt sufficiently insecure to cement his right to stay in the country.

However safe the status of foreign workers in hospitality might be in the UK, his action underlined how disconcerting the Brexit vote seemed to many of them.

Almost all of Gauthier's staff are from other European countries. He says: "We were all very shocked by the result: stressed and worried, but we had to respond practically. I emailed our customers straight away to tell them that it was business as usual and that we wanted to welcome them."

Whether that email worked, he can't say, but business for Gauthier has been good since the vote. He adds: "It is very strange, but certainly business was better for us in July and August this year compared to last year. I'm not entirely sure what to put that down to, but I have seen in the past, that when a big thing like this happens, people can react by going out more.

"I'm not comparing the two events, but I did notice the same increase in business after September 11 attacks. It's almost as if people think, why not? They not only come out more but spend more on wine."

If Gauthier has a long-term worry after the referendum vote, it's the predictable one of whether he will be able to get the staff he needs in future: "For now, we are fine. Nobody is talking about sending anybody home and most of my staff have been working in the UK for years. But I can see a time when recruitment might be an issue unless the UK government is really willing to help us get the people we need."

Alexis Gauthier

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