By Joey Barnett, Co-founder, CEO (www.getleslie.com)
At the beginning of October, the hospitality industry was hit with a double whammy of fresh challenges. Not only did the furlough scheme end, removing government financial support for businesses that still had furloughed staff, but the VAT rate for the industry also increased to 12.5%.
Back towards the beginning of the pandemic, the Chancellor reduced the VAT rate for hospitality to just 5%, from 20%. This was a welcome move, intended to try to reduce the burden on an industry that would clearly struggle through the following months. Now, after more than a year at 5%, the government is beginning the process of returning the VAT rate to pre-pandemic levels, first by upping it to 12.5%.
Although hotel, restaurant, pub and cafe owners will feel the effects of this increase on their bottom lines, it’s customers who will feel the impact in their wallets.There’s already major pressure on prices with supply chain and staffing issues continuing to stretch businesses to the limits. Now, with the jump in VAT, many business owners will have to change their pricing yet again.
SURVIVAL TACTICS
Trade bodies representing the hospitality industry claim that restaurateurs, cafe and pub owners across the country are already struggling to survive, let alone recover, from the pandemic.To say the VAT increase and the ensuing price rises that are bound to follow, are poorly timed is an understatement.
Then there’s the expected further rise to 20% planned for April 2022. This will no doubt lead to further price increases for business owners to navigate.
Now, major trade associations representing businesses in the hospitality industry are calling for the rate to stay at 12.5% permanently, instead of rising to 20% in spring next year. A joint statement by trade bodies including UKHospitality, the British Institute of Innkeeping and the British Beer and Pub Association, said:
“A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.”
TURNING TO TECHNOLOGY
Whether this happens is unclear.What is clear, however, is hospitality businesses have to find a way to navigate these changes while protecting their bottom line and keeping customers happy.
It’s no small task; but the key to success lies in agility. Agility delivered through technology. After all, one of the things the pandemic has highlighted is the use of technology to solve challenges.
When it comes to menus, for example, adjusting prices, adding dishes or making general changes can be costly and time consuming. Moving to digital menus brings that agility to operations.
In addition, pairing digital menus with other functionality, such as ordering, tipping, or even paying, can have a positive impact on the customer experience. No waiting on waiters or getting stuck at the bar.While customers will bear the brunt of the VAT increases, restaurants, bars and pubs can still ensure they place the customer first and streamline the experience to boost loyalty.
Technology like apps or QR codes can also be used to communicate promotions and play a role in upselling. Again, the agility to easily tweak menus can bring significant value to the business – like adding a half- priced cocktail promotion to a Wednesday evening, a themed beer to coincide with a quiz night, or using a set menu for a traditionally quiet Monday evening.
MOVING FORWARD
It’s a really difficult time for hospitality owners and managers right now – rising costs, supply issues and staff shortages. And while time (and government) will tell whether the VAT changes are here to stay, businesses need to find a way through the challenges balancing profits and customer loyalty.Technology might not be the cure for all ills, but when it comes to hospitality, it just might be.
