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What does 2011 hold in store for the hospitality industry?

06 January 2011 by
What does 2011 hold in store for the hospitality industry?

If we are to believe Lord Young, the Prime Minister's erstwhile adviser on business, most of us have "never had it so good", with low mortgage rates leaving many consumers with more disposable income than before the recession hit.

While the comments were misguided, there was, of course, an element of truth behind them and, for many hospitality operators, the recession has not been nearly as bad as feared, with revenues - if not margins - holding up relatively well.

VAT

But the New Year holds new fears, with the industry set to begin to feel the impact of the Comprehensive Spending Review on jobs and consumer spend, not to mention the increase in VAT, which is likely to raise at least £1bn for the Government from the sector.

The big question for operators is whether prices should absorb the VAT increase or should rise, according to Martin Couchman, deputy chief executive at the British Hospitality Association.

"Restaurants, with specific pricing of menu items, may need to impose the VAT increase to maintain margins," he said. "The only alternative is to cut costs. But costs have already been cut during the recession. How much further they can be cut is not clear."

DISCOUNTING

Couchman added that if operators opt for an increase, value will become ever more important to a customer base that has already come to expect reductions. "Will this be the year when the industry begins to wean the consumer off all the special deals that are being offered by hotels and restaurants?" he asked.

For Horizons managing director Peter Backman, this will be easier said than done. "Consumers have developed a voucher-scheme mentality when it comes to eating out," he said. "It's a treadmill that many operators will find impossible to get off without redefining their target audience in line with lower prices."

Adam White, co-founder of east London restaurants Village East and the Garrison - who with co-founder Clive Watson is opening a third restaurant, the Riding House Cafe in Soho, in March - said value will be more important than pure discounting.

"More operators will follow the example of smaller, neighbourhood restaurants that have the ability to keep their operating costs down and which already deliver good value to their customers," he added.

NIL COST

On the contract catering side, most clients will be looking to cut costs and the sector will see more businesses looking to achieve a nil cost catering service, according to Geoffrey Harrison, managing director at Harrison's.

"But nil cost services needn't mean nil income - it just means we have to be more creative about how to deliver the best customer proposition and really provide value from the catering facility," he said. "Everyone will be looking to save money so we have to make sure the offer is keenly priced.

"But we must avoid returning to a trend of ‘lowest price wins' as this rarely ends up as the lowest cost - a wise man once said ‘you can't cost-cut to prosperity' and in our business this certainly holds true."

ALCOHOL PRICING

Discounting will remain a controversial subject for pubs - which believe rock bottom pricing of alcohol in the supermarket sector is damaging trade - with the issue of minimum pricing set to remain at the top of the agenda.

Hotels, meanwhile, should be able to reduce the proportion of rooms sold through discounted channels, with the return of the business traveller, according to PricewaterhouseCoopers.

However, public sector spending cuts are ultimately likely to damage hotel revenue as Government-generated travel represents 20% to 30% of UK hotel business, meaning reduced travel and tougher rate negotiations, the professional services firm warns.

TWO-TRACK RECOVERY

London will once again drive the recovery in the hotel market, with revenue per available room at the capital's properties likely to rise by around 8-10%, with the provinces only managing 2-3%. High profile openings in the capital will include Four Seasons London, Starwood's W in Leicester Square and the Corinthia.

THE PROVINCIAL VIEW: ‘NOT BLEAK, BUT UNCERTAIN'

Simon Bennett, owner, Augill Castle, Cumbria

"Consumers are leaving their buying decisions much later, are more price-sensitive and less willing to take a gamble. We are prepared to accept that adding value to our offer will be more important than ever in 2011 but this will be tough against a backdrop of increasing staff costs, increased VAT and increasing fuel, food and other costs.

"The upside of customers' reluctance to take risks is that we have seen a marked increase in repeat business, often from guests who stayed with us several years ago; a flight to safety if you like.

"All in all, 2011 looks not bleak, but uncertain, with more pressure from all angles on the bottom line than at any time since we started in business 13 years ago. For our part, rather as after Foot & Mouth and the 9/11 terror attacks, we will be prepared to adapt and reinvent ourselves if necessary. There will be no room for arrogance. More than ever, in 2011 the customer will be king, but he is an uncertain, cautious king."

THE LONDON VIEW: ‘A VERY EXCITING YEAR'

Henrik Muehle , general manager, St James's Hotel and Club

"We expect this year to be a very exciting one for the industry in general and the St James's in particular. We have the Royal Wedding to look forward to, the Champions League final is coming to London and we have the build-up to the Olympics. All of these events will attract even more visitors to London than usual, obviously many of them leisure guests, but we have already noticed an increase in the number of business travellers booking for 2011 from companies who are associated with the corporate side of the events.

"At the St James's we explore and develop new markets, such as the BRIC countries [Brazil, Russia, India and China] and have several trips planned. Several new hotel openings are planned for 2011, which will increase competition within the industry but I firmly believe that to be a good thing as it keeps standards high."

SUSTAINABLE RESTAURANTS

Sustainability will remain at the top of the agenda for restaurants during 2011, according to leading operators.

Mark Selby, co-owner at Mexican restaurant chain Wahaca, said ecological issues such as responsible sourcing are "close to the hearts of so many and deserve to be taken seriously".

"With such a huge range of amazing restaurants available now, customers have the luxury of being able to choose their venue based on more than just their taste buds," he added.

"We are committing to running a zero landfill site and reducing our energy usage by 10% in our existing restaurants in Canary Wharf, White City and Covent Garden. We will also be working with our suppliers to ensure that the welfare standards of our food and drink are constantly being raised above the levels expected by our customers."

Andrei Lussmann, founder of three-strong restaurant group Lussmanns, agreed. "I think restaurants are starting to realise that if they do it properly, across all areas of the business, sustainability can save them money as well as offer their customers what they want. I think 2011 will see many more restaurants wake up to this while remaining competitive and profitable."

"We've already reduced our waste management bills by 45% while recycling 75% of our waste. In 2011 we are going to work with the Sustainable Restaurant Association to increase our energy efficiency, hopefully with the same results," he added.

Mark Cribb, owner of the Urban Reef Hotel and Urban Beach Restaurant in Bournemouth, said sustainability was fast becoming the watchword for restaurants. "It's been our way of operating for some time, initially on an ethical level, but we've found there are great cost and efficiency benefits too," he explained. "We just installed an energy monitoring system across the hotel and restaurants and while the up-front cost isn't cheap, it's saving 30% on electricity usage. This means it will pay for itself in 12 months and we'll continue to benefit thereafter. We've also installed magnets to optimise gas usage, saving an additional 25% on gas bills."

www.thesra.org

SIX THINGS THAT WON'T HAPPEN IN 2011

â- Gordon Ramsay and Chris Hutcheson have an emotional reunion, reforge their business partnership, and release a charity cover single of the Bill Withers classic Just the Two of Us to celebrate.

â- Restaurants solve the problem of diners' addiction to discount vouchers by issuing ‘premium vouchers', which entitle customers to voluntarily pay an extra fiver for their meal until they finally get to the point where normal price feels like good value.

â- Osborne, still high from his ghoulish encounter, introduces a punitive Cooking Lager Tax targeting rubbish, under-priced beer to cement the dominance of the burgeoning cask ale market.

â- The Government manages to create a single universal hygiene rating system, adopted by every single local authority in England and Wales, that every single member of the public understands.

â- After peace talks with hoteliers, TripAdvisor introduces a Rate My Customer section, allowing angry business owners to respond in kind to vicious or unpleasant reviews.

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