Future Shock maps hospitality’s rollercoaster ride into 2021

 

www.cga.co.uk 

The UK’s hospitality sector has suffered lost sales of more than £53bn in 2020, with more losses to come from a collapse of Christmas trading—but a COVID-19 vaccine rollout provides grounds for cautious optimism in 2021.

Those are among the messages from ‘Survival to Revival’, the eighth edition of the Future Shock series of reports from CGA and UKHospitality. It provides the definitive picture of hospitality’s rollercoaster 2020, and sets out the challenges and opportunities facing the industry in 2021.

Research for the report, drawing on CGA’s market-leading suite of business and consumer sources, shows the seismic impacts of the pandemic and lockdown on UK hospitality, including:

• A £53.3bn year-on-year drop in sales between the start of April and the end of September
• Falling consumer confidence, with 78% of British adults concerned about the long-term financial implications of the pandemic
• Hesitant business confidence, with 27% of leaders of multi-site groups predicting they will be unviable by mid-2021 with current levels of support
• Bleak prospects for Christmas trading while 98% of England’s licensed premises remain in severely restricted Tier 2 and 3 areas.

But the Future Shock report also celebrates the hard work and achievements of operators and suppliers in 2020—especially on keeping people safe. It shows that 95% of consumers have been satisfied with the level of hygiene they have found in venues this year, and 55% now say they feel safer in hospitality venues than in shops and supermarkets.

The report sets out major trends and developments for businesses to track in 2021, including:

• An acceleration in consumer use of technology in restaurants, pubs and bars
• A further increase in delivery sales—of alcoholic drinks as well as food
• A continuation of the lockdown trend of eating and drinking close to home rather than travelling to city centres
• Increased availability and affordability of property in the wake of business failures.

As well as exclusive research from CGA and views from UKHospitality, Future Shock features insights from report partners Independent Clinical Services, Molson Coors, OrderPay and Sector Associates, who explore ways for operators to engage with issues including technology, COVID-19 testing, insurance and drinks ranging for new consumer behaviour.

Karl Chessell, Business Unit Director, Retail and Food at CGA, says: “This has been the most difficult year in hospitality that most of us have ever known, and our report is a chance to reflect on the havoc it has wrought—but just as importantly to look forward to what we all hope will be a happier 2021. Sadly there have already been many business casualties in our sector, and more will inevitably follow as a result of the onerous limits on trading and socialising at what should be the busiest time of the year.

But among businesses that have been able to sustain themselves, the pandemic has instilled a resilience and innovation that will stand them in good stead for years to come. The road to recovery clearly has a long way to run yet but there is light at the end of the tunnel, and at some point in 2021 we can hope for a release in the pent-up demand for all the experiences that people love in hospitality.” 

Kate Nicholls, Chief Executive at UKHospitality, says: “Undoubtedly, 2020 has been a disaster for the sector. Every aspect of hospitality in every corner of the UK has come under enormous pressure and we are by no means out of the woods. There is, though, every chance that with the right support businesses can begin to trade their way out of danger and towards some degree of prosperity next year. The roll-out of a vaccine should give us all confidence that the next year will be dramatically better than this one.”

Beyond COVID-19: Grounds for optimism in 2021

COVID-19 and lockdowns have transformed the way consumers engage with the hospitality industry. There is more turbulence to come, which makes forecasting for the months ahead difficult.

But CGA’s consumer research, sales data and business surveys data all point towards depressed sales for several months to come. With swathes of Britain under punishing restrictions it is clear that 2020 will bring the worst Christmas trading in many years—especially for pubs and bars that rely on drink for the majority of sales, and which face the loss of celebratory occasions over the festive period. 

The outlook for the first few months of 2021 is little brighter while the trading restrictions remain in place. Consumer confidence and spending is likely to remain depressed, and thousands of licensed premises will stay closed for good. It emphasises the need to deep and sustained Government support for hospitality until it has the freedom to operate properly again. 

But as 2021 wears on, and the COVID-19 vaccine is hopefully rolled out around the country, there is light at the end of the tunnel. CGA’s consumer research consistently confirms people’s eagerness to get back to venues when it is possible and safe to do so. While still low, the confidence figures revealed in CGA’s November Business Confidence Survey are at least higher than at any point since the pandemic began, and most leaders are optimistic for the long-term future of the sector. Nearly half (45%) of them say they don’t intend to keep any sites permanently closed, and around the same number (44%) plan to open new sites in 2021—more than the 38% who don’t plan any. Well over half of leaders (57%) also anticipate recruiting new staff in 2021—albeit many of them to a lesser extent than before— and with so many job losses this year, they will have access to a much deeper pool of talent.

Delivery could be another bright spot, with well over half (58%) of business leaders anticipating an increased demand for it in 2021—though for some, this may come at the expense of eat-in trade, and at a cost to margin if orders are fulfilled by third party delivery platforms. Many businesses have also found innovative ways to work around the restrictions on eating in, especially through open-air venues. Meraki in Liverpool, the Cargo development at Wapping Wharf, Winter Island in Manchester and Liverpool Without Walls are just four examples of venues that have flexed their spaces to continue trading through restrictions. Sustaining al fresco dining through a British winter will be a challenge, but businesses have demonstrated that they are ready to meet it.

Despite COVID-19 and Brexit, hospitality businesses that can reassure their customers, engage their staff, deliver value and be ready to pivot remain well placed for success in the long run. We are unlikely to see a sudden bounceback in trade, but if infection rates fall and consumer confidence returns, there is hope that site openings and sales will both soon follow upward curves. This year has reminded people how much they love hospitality, and they will be keen to get back to what they have missed in 2021.

Five hospitality trends to watch in 2021

It is already evident that some changes in the way consumers behave—and the way businesses respond—are here to stay. Here are five significant dynamics that have emerged in CGA research during hospitality’s recovery, and that could endure well beyond the end of the pandemic

• Property availability 

As the monthly Market Recovery Monitor from CGA and AlixPartners has shown, the pandemic has already removed a lot of capacity from the licensed sector. How many of those venues eventually reopen remains to be seen. But the flip side of the business failures that inevitably lie ahead is that operators that can sustain themselves until the end of the pandemic will have good opportunities to bounce back. 

With trading capacity substantially reduced, property costs down and landlords seeking to attract new tenants, there will be headroom for well-run and distinctive hospitality operators to grow. Vacant properties will provide space for new entrants to establish themselves in the market too. 

• Localism 

With so many people at home during 2020’s lockdowns and restrictions, there has been a new focus on local businesses, and operators in suburban and residential areas attracted footfall that previously went to city and town centres. With so many people still working from home, and significant numbers likely to do so more than they did before COVID-19, even after restrictions are lifted, this trend may well continue. 

Most offices are unlikely to return until the new year at the very earliest, and some may not open at all. This is bad news for operators in the business and tourism districts of city centres, but a big opportunity for those that can connect with their local residents. Business leaders are responding accordingly, turning away from city centres towards more residential areas. Office and tourism numbers may eventually get back towards pre-pandemic footfall, but until they do the fastest recoveries are likely to be where people live rather than work. 

• More technology 

The pandemic has undoubtedly sped up businesses’ adoption of technology, delivering years’ worth of advances in a matter of months. The activity has been focused on three key stages of the consumer journey: booking, ordering and paying. CGA’s Business Confidence Survey with Fourth has shown that two thirds (65%) of business leaders had implemented or invested in app ordering systems in 2021, and sizeable numbers had also spent on pay-by-app (54%), pay-by-phone (41%) and online booking systems (41%).

Consumers have clearly embraced digital ordering and payment as a way to ensure safety as well as convenience. Once the pandemic eases and they are able to settle back into old routines, will they wish to continue with a high-tech experience, or will they want to return to more traditional, face-to-face methods? There is still a high demand for human interaction in hospitality, among older people and it will be very interesting to see whether the use of technology grows or plateaus. 

• Advance planning 

The pandemic and technology have combined in 2020 to make advance planning a much more important part of the out-of-home eating and drinking experience. Safety concerns and the ease of booking online led many consumers to reserve tables rather than simply turn up at a restaurant. 

This was particularly apparent in the couple of weeks after lockdown ended in July, when only a quarter (28%) of consumers visited venues with no reservations. There are signs that booking levels have eased a little since then, but ongoing restrictions mean that many people will still prefer the certainty of a reservation over the advantages of flexibility in a trip out. For operators, that presents the challenge of optimising booking technology and solving the issue of no-shows that has been a high profile side effect of the trend. 

• Delivery and the omnichannel 

The food delivery market was growing fast even before the pandemic, but lockdown sent it into overdrive. More than a quarter (27%) of the British population ordered deliveries for the first time, or more often than usual, during the first national lockdown in the spring and early summer, with 18 to 34 year-olds and town or city dwellers the heaviest users. 

A market that was once dominated by independent restaurants is now a big deal for leading eating out brands. CGA’s Coffer Peach Business Tracker showed that delivery accounted for 10% of total sales in September 2020—twice as high as the figure of 5% in September 2019. For these operators, the operational logistics of delivery, and relationships with major trading platforms like JustEat, Deliveroo and UberEats, will be very important areas of focus in 2021. 

There is potential to grow deliveries of alcoholic drinks as well as food. Nearly a fifth (17%) of 18 to 34 year-olds in city centres have ordered alcohol for delivery by August. We are also likely to see the continued evolution of lockdown innovations like at-home meal kits, with which brands like Hawksmoor and Dishoom had good success over lockdown. Omnichannel is likely to be a commonly heard word in 2021.

(full report can be downloaded here: https://info.cga.co.uk/hubfs/Future%20Shock%202020/CGA_UKHospitality%20Future%20Shock%20Issue%20Eight%20Survival%20to%20Revival.pdf)