The expert’s take: How COVID will impact hospitality
Recently I was fortunate enough to be in the “audience” for a webinar delivered by Strategic Advisor and Futurist, Simon Stenning, entitled “The Immediate Future of Foodservice”, undertaken on behalf of CEDA and its members.
There is not enough room in this blog to go into the details of everything that Simon covered but here are some of the key elements of his detailed analysis of what he believes lies in store for the foodservice sector over the coming months, and indeed years.
Overall, the hospitality sector is expected to lose £23bn of revenue in the second half of 2020, when compared to the corresponding period in 2019. Total revenue for 2020 will be just 53% of the 2019 figure.
When it comes to the economy the Bank of England expects unemployment to rise from its current level of 4% to around 10%, before falling back to around 7% next year and back to 4% by 2023. This is based upon the assertion that it takes 6 months to regain each percentage point. The Bank also reported a dramatic fall in inflation, to 0.4%, the lowest figure since the financial crisis in 2008.
So, is it all doom and gloom? Well, yes…and no, depending upon which sector you are operating in or supplying. Here are the projections on the level of business the different sectors can expect to achieve in the second half of 2020 as a percentage of the second half of 2019.
Service Led restaurants (fine dining, independents, and branded chains) – 48%. Casual dining has been affected for some time, with sites closing, and this will continue. Many of the problems are those from the past which are now catching up with them, meaning that many are no longer fit for the future. Some brands will disappear, and others will shrink, as we see a move away from fast-casual towards better value, more informal meal experiences. Mid-market, service-led businesses will really struggle. Although fine dining can manage from a safe distancing perspective its kitchens will be hard to work in and they are likely to be hit by the economic conditions and subsequent reduced spending.
Fast food – 77%. Along with the value that they represent the takeaway and delivery aspects of most fast food outlets have ensured that this sector has fared best of all since the start of the Covid-19 crisis. The drive-thru nature of many of them has also helped – consumers feel safer in their cars. That said, those who rely heavily on eat in have still struggled, as have many streetfood operators situated in indoor and city centre locations who have suffered from a lack of consumers visiting these areas.
Pubs – 55%. The largest sector. Although the figure is low many are putting great plans in place such as having hosts on the door, using technology, reducing numbers on site, and introducing ordering/payment apps. Consumers will book online and be shown to their table upon arrival. From there they will order their food and drink which will then be delivered to their table. Some parts of the pub sector will come out well, especially tenanted and freehold sites that have turned into local heroes by adapting their offer partly to survive and partly to support their local community, and they will benefit from the trust and affinity that this brings.
Hotels – 35%. Hotels have been trying to fight back against people who stay at a hotel and use takeaway and delivery services like Deliveroo and Just Eat to eat in their rooms. This will continue and so bars, lounges and restaurants will not be busy. Room service will do ok, but consumers want more choice and better value and will use Deliveroo and Just Eat to get this. Hotels can counter by operating as dark kitchens, doing room service better and even delivery. For budget hotels f&b has never been strong. We will see people using local fast food outlets and coffee shops for breakfast and pubs in the evening.
High street (coffee shops, sandwich bars, bakeries, garden centres) – 62%. There is a bit of a mixed picture here. Coffee shops that are primarily based around a takeaway option will do ok, but those who double up as impromptu offices will suffer. Bakeries will do well from a takeaway perspective but will have to manage the number of people entering and as many are in city centre locations they will suffer from reduced footfall. Garden Centres could do well, especially those that operate as farm shops, so long as they do social distancing correctly.
Retail grocery – 51%. The big sandwich retailers have suffered quite badly: why buy grab & go food when we can buy the ingredients and make them at home? Again, their city and town centre locations have worked against them due to reduced footfall. Local convenience stores could do well on the basis that more consumers will be working at home. The most important factors for the retail grocery sector are that it delivers value and that packaged goods work well from a safety perspective, both of which will play out well for them.
Travel – 53%. Whilst train stations and airports have fallen away, we will see increased car usage and so forecourts, and particularly forecourt food operators, stand to do well through the remainder of this year and through into 2021. It may well be that when it comes to stations and airports consumers will be prepared to take more time and be more cautious, leading to longer dwell times and a positive effect on the food operators located there.
Leisure (visitor attractions, entertainment venues, sports and leisure) – 24%. There is going to be a long-term impact here. Whatever measures are put in place the number of people attending these venues is going to be far lower. There will be no outside events, and all the f&b that supports them, and when it comes to cinemas and theatres then even if consumers start to go back there will be a reduced f&b offering. The same is true with gyms and sports clubs – we might get back into the activities, but the f&b element is going to reduced. When it comes to visitor attractions there will be bookings to go in, much more caution, much less traffic, and they will be very slow to come back from an f&b perspective. The rise of staycations could see us use more leisure facilities, but not necessarily the f&b attached to it.
Contract catering – 69%. This is quite a high forecast because of the breadth of the sector and because it includes defence, justice, social care, and healthcare, all of which have performed well throughout the current crisis – healthcare particularly – and will continue to do so. B&I has been affected with many contract caterers saying that they are only operating around 50% of their sites owing to there being fewer employees on site. However, employers will want to show that their offices are safe and clean and will want employees to stay on site and not go out of the building to eat – that’s where B&I will come back. The lost element will be corporate hospitality around sports and leisure activities. These will continue to be severely impacted by safe distancing restrictions and so it is expected that corporate hospitality will take a back seat for a while.
Going forward there is likely to be a long road to recovery. As stated at the beginning the total revenue for 2020 is expected to be 53% of the 2019 figure but between now and the end of the year each month gets better and in 2021 each quarter gets better. There will be a steady increase in the number of sites that re-open, as well as new sites and shrinkage slows down as consumers get back into old habits.
The forecast for 2021 is that the yearly turnover figure for hospitality will be £88.2bn, 10% lower than the 2019 figure of £98.1 and is not expected to return to 2019 levels until 2025.
Of course, as with any forecast, there are several assumptions here, the most significant being that there will be a Brexit free trade deal in place by the end of the year. However, that said, we hope that you have found this insight useful and informative.