Battling on: the hospitality industry
It has been a torrid few years for hospitality, battling Brexit-driven staff shortages, the pandemic, and now spiraling business costs.
According to new data, this latest crisis has left some with no option but to close, with U.K. pub and restaurant closures in 2022, exceeding those driven by the pandemic in 2021. The latest hospitality market monitor from AlixPartners CGA revealed that the final quarter of 2022 saw a decline of 1,611 hospitality premises, a 1.6% contraction of the U.K.’s hospitality sector over the three months. Across the whole of 2022, hospitality recorded a drop of 4,809 premises.
Yet other hospitality entrepreneurs have found ways to survive these business challenges. Korean Street food restaurant Seoul Bird opened its first site in London in July 2020. Like so many restaurants, they were severely hit by massive staffing shortages in the hospitality sector created by Brexit and the pandemic. Their initial response was to secure a visa sponsorship license. However, this was only viable for higher-level employees.
CEO, cofounder and executive chef Judy Joo says: “We have to pay higher competitive wages and offer good incentives to retain staff. Many restaurants have reduced hours of operation and menus due to a lack of staff. We have also found that word of mouth is our strongest recruitment tool, and we have employed many friends and relatives of those already working for us.”
Two years on, Seoul Bird has a further two sites, including a second venue in London and its first licensed site in the Aria Hotel and Casino in Las Vegas, and has 52 members of staff. The challenge they face now is rising costs, and the impact on business operations and revenue as cash-strapped customers spend less on dining out.
Seoul Bird’s COO Andrew Hales has tackled this challenge by creating a solid network of suppliers and backup suppliers, allowing them to keep prices competitive and costs of goods sold (COGS) down.
“Energy costs have been a problem in one site in particular where they quadrupled to the point where it was almost as much as our rent,” says Joo. “We asked our energy provider to help us with a suitable payment plan, but they were unsympathetic, and their response was, ‘we are a business, too.’”
Their solution was to change providers and find ways to shield the business from further spikes in the future. They are facing additional pressures, including deflated tourism, a new normal of three or four-day work weeks, and footfall that has yet to return to pre-pandemic levels. Currently, they are trying to renegotiate terms with their landlords.
“We’ve had to raise our prices slightly, but I think customers expected it as the cost of living has gone up across the board,” says Joo. “We can’t discount too much, as we need to compensate for our increased costs, but we are looking at loyalty programs. Our main focus is providing great food and value to our customers.”
However, many restaurateurs cite ongoing staff shortages as their biggest challenges. It is a long-standing problem. For many years the hospitality industry has relied heavily on skills from Europe, mainly because it hasn’t appealed to people from the U.K. due to the long hours culture associated with it.
When Brexit caused a mass exodus of skills from the U.K., Aktar Islam, founder of Indian fine dining restaurant Opheem, devised a skills pipeline of his own. The Birmingham-based restaurant was opened in 2018 and, the following year, won its first Michelin star, becoming the only Michelin–starred Indian restaurant in the U.K. outside of London.
To combat the industry’s skills crisis, Islam set up an in-house apprenticeship program, through which 30% of the kitchen team has been recruited, trained and developed. The restaurant employs 40 people.
“They were brand-new to the industry and had no relevant skill sets he says. “However, this is still not enough, and we have had roles open for over a year that we can’t fill.”
Record inflation and rising costs-of-running business have added to the problems. Many bar and restaurant owners are finding ways to avoid passing costs onto customers by raising their prices.
“We have had to absorb a lot of those costs as we understand many of our customers are struggling or do not have the extra income that they used to,” says Islam. “However, we are a debt-free business, which has helped us stay afloat. It’s a different story for businesses that have taken on additional loans during the pandemic and accrued debt.”
Raising prices is often a last resort for restaurant owners. There are other ways of offsetting some of the business cost increases, for example, scaling down menus and sourcing more local produce, which can save food costs and help ease the pressure.
Reducing opening hours will impact revenue opportunities, but being open during quiet times may not be cost-effective. Cutting opening times by a day or even half a day will reduce energy costs.
If price increases are unavoidable, keep customers informed. They are also struggling with the rising cost of living, but a polite social media post validating your price increases as necessary for staying open will help to keep them onside.
