Brexit: The Good, The Bad And The Unknown For Hospitality Smes

BoostCspitalBy Alex Littner, Managing Director of Boost Capital

WHEN Britain voted to leave the European Union on June 23, sterling tumbled, and businesses across the UK wondered what it would mean for them. A weak pound may equate to higher costs for importers, happy days for exporters, and more expensive holidays for Brits abroad. But hospitality is one industry experiencing immediate effects, with more foreign visitors taking bargain breaks in Britain, while UK customers rein in their spending. In fact, Brexit is set to have an impact on hotels, restaurants, pubs, and bars in a number of ways, some positive, some negative. Where can hospitality bosses find the opportunities in this rapidly changing business landscape? And how can they tackle the less welcome challenges?

Attractive for tourists

A fall in the value of the pound after a vote to leave was widely predicted, so it came as no surprise when sterling plummeted to a 31-year low shortly after the referendum. But, one upside is that Britain seems a more attractive and affordable destination to overseas visitors who are getting more pounds for their currency. And there is evidence a Brexit tourism bounce is already taking place.
The number of flights booked to the UK in the week after the vote – June 24 to July 2 – was 9.4 per cent higher than the same time last year, according to Travel consultancy ForwardKeys ( ). This should be a positive development for firms that accommodate, feed, and entertain travellers, so canny hoteliers and restaurateurs will look to actively market themselves to overseas visitors. Don’t wait around – devise a quick hit marketing strategy alongside any existing longer-term plan. Whether it’s using social media, email shots, or promoting the business through third-party platforms, take advantage of the focus on the UK at present.

Domestic doldrums

However, any increased foreign spending must be balanced against an expected drop in domestic customers, many of whom are now expecting a Brexit-related recession. Footfall on the UK high street slowed dramatically in the immediate aftermath of the vote, while polls to gauge consumer confidence also reveal a significant shock effect from the referendum decision. All of this points towards people being less inclined to spend their cash on non-essentials, which would include eating out and weekends away.
As always, make a virtue of your size. Smaller companies are more agile than their larger rivals, and can react to changing circumstances, amending their offering quickly. Hoteliers looking to improve cashflow might think about offering non-refundable packages that give a lower than usual room rate for customers who pay upfront, for example. Food businesses could launch a lunchtime deal on days when trade is typically slow. But all companies in the hospitality realm should increase the frequency of cashflow forecasts to flag up potential problems. Food and drink prices are likely to increase with higher inflation, which makes watching the day-to-day financials more important than ever. Once areas of difficulty are known, they can be addressed, either by cost-cutting, changing suppliers, or taking out bridging finance if a shortfall is on the cards.

Recession lessons

Many hospitality bosses have the wisdom of their experience of the last recession to help them through the uncertainty ahead. The economic downturn of 2008 took a severe toll on the industry, but coincided with extraordinary developments in digital technology affecting how people search for information and make bookings, both in hotels and restaurants. Many companies that embraced technology, including third party booking sites and the consumer review platform Tripadvisor, weathered the storm, and saw some clear benefits.

Third-party aggregator or discounting sites do require careful managing, as they can charge hefty commissions for listings, and the economics don’t work for all businesses. Also, Tripadvisor reviews can be more damaging than brand-building if handled badly. But a good business that gets a buzz around it on the review site can punch well above its weight. Also, customers now actively seek value for money, and are prepared to use technology to shop around for the best deal, so hospitality firms that want to remain relevant should keep up with these new ways of engaging with customers. Those that do it well will be the winners in the long-term.

Hiring headaches

Much has been written about the likely impact of Britain’s withdrawal from Europe in terms of hiring readily available, inexpensive foreign labour. The UK’s bars, restaurants, and hotels are extremely reliant on EU workers who make up a large proportion of the industry’s workforce. The politicians are battling out this sore point of the Leave campaign – how many EU nationals will be allowed to stay in Britain after Brexit comes into effect. But it looks likely there will be fewer cheap, willing recruits to choose from in future.
However, while a settlement with Europe is being agreed – and that could take several years in practice – we remain part of the EU. And there’s every possibility more foreign workers will come to these shores in an attempt to get established here before the rules change. This could provide employers with a hiring opportunity in the medium-term. Plus, existing staff are likely to be more keen to hold onto their jobs in tougher times, which could reduce the industry’s notoriously high employee turnover.

The danger of ignoring investment

Boost Capital has strong relationships with our hospitality clients – up to a third of our business ( ) is done with these types of firm, so we know the sector well. Many have told us that cutting back on investment during leaner years proved counter-productive. Those that trimmed costs in the last economic slump often saw their properties depreciate, which translated into fewer visitors, so business suffered more. Conversely, those that recognised the need to invest to remain attractive to customers won out over their more cautious peers.

Firms that do borrow from us typically do so to help with cashflow, buying inventory, or purchasing new equipment, but remodelling or expanding their operations is also not uncommon, even in more straitened times. We have helped many restaurants, bars, and hotels with funds to increase covers or spruce up accommodation with great results. But making the necessary effort can be as simple as repainting the façade of the building or revamping the food menu. Making the customer feel valued is the most important thing, which often costs little or nothing.

Further surprises and challenges will, no doubt, emerge for business owners as Britain negotiates its way out of Europe. But the UK’s hospitality SMEs can still succeed with determination, imagination, and the right support. We at Boost Capital intend to continue delivering just that. SMEs, for their part, must employ good business sense, watch their costs – and their customers, and remain adaptable. Opportunities exist for those that can spot them, regardless of where one is in the economic cycle. The future may be uncertain, but that doesn’t mean it can’t be bright.