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2024 so far and what lies ahead

A recap of events impacting the UK hospitality industry this year.

By alisonfraser|Aug 22, 2024|11:27 am BST

The start of 2024 was a tricky time for many in the hospitality industry. Despite a buoyant 2023 festive season that saw hospitality operators increase sales revenues by 6.1% compared to 2022, nearly one in four businesses went into the year with no cash reserves. A further one in three had less than three months’ worth. Consumers were also feeling the pinch; nearly a quarter indicated they’d be scaling back their eating-out budgets for 2024. Unsurprisingly, 64% of operators started January with little optimism about the future of their business.

Despite a series of blows over the last eight months, there have been glimmers of hope, and challenging times are forcing many operators to adapt and innovate in response. We take a look back at the year’s main milestones and consider what could still be on the cards for 2024 as we head towards the festive season.

2024’s major events

April: Workforce legislation gets an update

Cost increases have been the story of the last two years and, while they’re slowing down for the wider UK economy, hospitality operators are still under pressure. Staffing shortages and skills gaps contribute to mounting labour costs, and 95% of businesses in the sector have seen their wage bill grow annually. Food, insurance, and energy bills also continue to rise.

The National Minimum Wage (NMW) increase in April has significantly contributed to this year’s growing labour costs. NMW was increased by 9.8% to £11.44 per hour. For the first time, the change applied to workers aged 21 and over, a shift from the previous threshold of 23. New legislation around holiday entitlement and pay calculations for part-time and casual staff also took effect in April.

Simultaneously, an increase in the earnings threshold for skilled worker visas was introduced, meaning employees now need to earn over £15.88 per hour to qualify. This potentially limits the available talent pool and pushes up both the cost of labour and competition for it.

Get the lowdown on the updates to UK HR & Payroll Legislation for 2024

June: Washout weather keeps punters out of beer gardens

While an early Easter and dry weather gave sales a boost in March, washout weather has largely been the story of the year. The CGA RSM Hospitality Business Tracker showed Britain’s top hospitality groups experienced a 1.7% drop in sales in April – the first year-on-year decrease since September – largely down to the wet weather.

Sales were up by June, with the tracker showing above-inflation growth of 2.9% for the month compared to 2023. While restaurants charted sales of 4.7% in June, year-on-year sales growth for pubs was significantly lower at 2.7%, likely down to poor weather conditions. However, UEFA European Championships (Euros) matches screened from mid-June helped to bolster sales.

June: Food service inflation continues to fall

The Food Service Price Index (FSPI), a measure of service food inflation, has been falling month-on-month for the last year. In June, it hit 3.5%, which is now a pretty normal rate for the industry but still far above the UK inflation rate of 2.2%. This demonstrates how out-of-step hospitality costs are compared to the rest of the UK economy.

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July: A summer of sport kicks off

The Euros and Paris Olympics fell within weeks of each other, heralding a potential increase in consumer spending. Consumer credit company Experian forecast that both sporting events could translate into a £233m increase in domestic spending. While the analysis covered a range of expenses, Experian expected hospitality to be among the biggest winners, with increased spending in pubs, bars, and supermarkets accounting for much of the boost.

That certainly seemed to be the case. Average drink sales in managed venues were up the week England took on Switzerland in the men’s Euros quarter-final, with the seven days to Saturday 20th July the best of the summer until that point. Drink sales soared by 124% on the day of the Euros Final. However, drink sales the week after the tournament tumbled by 6% compared to 2023 as consumers stayed home and saved money.

July: UK heads to the polls

An unexpectedly early election meant Labour moved from the Opposition to the Government benches at the start of July, having won on a manifesto that promised sweeping change.

A change in government typically boosts consumer confidence and triggers more spending –– a positive for hospitality. Indeed, going into the election, 36% of consumers said they’d be more confident about spending if Labour won the election.

As an industry that pays disproportionately high business rates, hospitality also stands to benefit from the party’s promised reforms to the business rate system, something trade bodies have been lobbying for some time.

However, the new government’s first King’s Speech, which set out its agenda for its first 100 days in office, was peppered with ambiguity and left many operators more concerned about the potential impact of legislative changes, including reforms to zero-hours contracts.

August: The sun shines and interest rates finally start to fall

August 1 brought some good news for debt-burdened operators. The Bank of England lowered interest rates for the first time in four years, bringing the rate down by a quarter of a point to 5%. This reduces costs for those servicing credit.

There is hope that August’s heatwave could also mark a turning point for pubs and outdoor venues. As the mercury hit 30 degrees in the first week of the month, drink sales increased 7%, with cider sales up 40% for that week.

What’s in store for the rest of the year?

It’s been a mammoth year packed full of defining challenges. The festive season is now careening towards us and will bring with it even more, including increased concerns around the cost of labour. Last year, operators ran their seasonal teams lean. Pubs and restaurants went into November with headcounts down 5% and 2.3%, respectively, compared to the year before. April’s increase to NMW will be playing on the minds of many, and operators will be contemplating strategies to prevent labour costs from spiralling during the holiday period.

Allocation of Tips Act starts a new wave of legislation?

Updates to tipping legislation, which will come into force on October 1, will add more complexity to workforce management and further increase the administrative burden for hospitality managers going into Q4. Intended to ensure that tips and gratuities are distributed fairly and transparently, the new legislation increases employers’ responsibilities around record keeping, distribution, and tipping policy. It’ll also prevent employers from holding over tips from busy periods, like Christmas and New Year, to supplement quieter periods when tips are generally lower.

The Employee Rights Bill, which was announced as part of Labour’s first 100 days in Government, won’t instigate immediate changes –– many of its proposals will need to be voted on and could take years to pass –– but it will undoubtedly be front of mind for many operators. It has been dubbed the ‘biggest upgrade to workers’ rights in a generation’ and will introduce updates to zero-hours contracts and firing and rehiring practices, among other changes. Labour’s first Autumn Budget on October 30 may clarify some of these changes and provide more information on what they’ll mean for the sector.

We expect the NMW to increase again in April of next year. The national living wage (NLW) is currently under review by the Low Pay Commission (LPC), which is charged with ensuring that the NMW reflects the cost of living. The Government will likely remove age restrictions around the NLW at the same time and may extend the adult NMW to employees under 21 years as well.

Will costs decrease?

While labour costs are likely to continue rising, there is hope that the government may provide some relief with tax cuts and business rate reforms. Industry bodies have been campaigning for a long time to reduce VAT for hospitality and tourism, and the Conservative’s last Budget in the Spring was met with widespread disappointment when those cuts failed to materialise.

While any kind of tax reduction seems unlikely given the new government’s fiscally conservative stance, there are things to watch out for in the upcoming Autumn Budget at the end of October. Industry trade bodies are attempting to hold Labour to its manifesto pledge to reform business rates. In a joint statement issued mid-August, the trade bodies collectively called to reduce business rates to help lessen operational costs. They’re also lobbying for a reduction in alcohol duty.

The AI Agenda

It has been almost impossible to avoid the buzz around Artificial intelligence (AI) in 2024, and that is only going to increase as we head towards 2025. AI is already being used successfully in a range of industries to improve decision making and productivity in admin-heavy tasks including stock management, purchasing, document processing, marketing and customer engagement.

We expect many UK hospitality operators to have AI adoption high on their agenda over the next 12 months as they look for new ways to increase profitability and empower their employees amongst ongoing cost pressures. And while use of AI is still in its relatively infancy within the sector, there are existing success stories out there to inspire others on the best use cases and ways to adopt AI. Numerous restaurant chains are using Fourth’s very own AI Forecasting to optimise their scheduling and control labour costs. In June, we unveiled our AI for Inventory module, which leverages the very same AI forecasting to underpin our purchasing and inventory management solutions, allowing operators to quickly adopt AI and automate much of their inventory processes with minimal disruption.

Fourth will be showcasing our new AI capabilities throughout Q4.

To discuss adopting AI to increase efficiency and profitability in your hospitality business, meet the team in person:

 

The legacy of 2024

This year has undoubtedly dealt its fair share of challenges but there have also been positives and, dare we say, we are in a marginally more optimistic state as an industry than we were this time last year. Inflation is no longer rampant, supply chain fragility has decreased, and interest rates have started to fall.

That’s not to say that 2024’s challenges aren’t equally demanding; NMW is a fundamental issue and increasing regulation adds additional pressure to management teams, but there are signs that the market is improving and will continue to do so. The proliferation of technologies like AI means that operators have more tools than ever to help mitigate the challenges they’re facing and, as adoption becomes easier and more widespread, we can be even more hopeful about where we’ll be this time next year.

We still have four months left of 2024; that’s plenty of time to define whether this year’s legacy will be positive or negative for our sector.