The industry is inevitably particularly vulnerable to cost-cutting by cash-strapped consumers as they have to choose what they can afford. When an industry relies on discretionary spending it has to be aware that consumers have the discretion to not spend their money with them. Companies have responded with discounts and special offers in order to ensure that consumers can afford to keep spending but inevitably, when the economy contracts and consumer confidence is low, the hospitality and leisure industry will suffer.
Industry analysts acknowledge that the leisure and hospitality sector is traditionally one of the last to suffer from an economic slowdown but also one of the last to emerge from recession as consumer confidence tends to recover slowly.
Statistics from accountants BDO Stoy Hayward on business failures bear this out – in 2008 failures in the hospitality and leisure accounted for around 5.6% of the total and this year are expected to make up 7% of the total in the UK. Next year that proportion is set to rise to 9%, according to BDO Stoy Hayward.
So far so gloomy but, of course the optimists will say the future is bright. The £114 billion-a-year leisure and hospitality sector is a key target for growth, particularly with a decade of major sporting events planned for the UK – the 2012 Olympic Games, the 2014 Commonwealth Games, the 2015 Rugby World Cup and, possibly, the football World Cup in 2018. The Government talks about a golden decade for sport in the UK and the hospitality and leisure industry will be a major beneficiary from these world class events. In addition the Government wants to create 200,000 more jobs in the sector by 2017, 69,000 of them managers. Of course 2017 seems like a long way off when you are battling with the effects of the recession today.
That is the future but what about the present? Are there signs that the hospitality and leisure industry is starting to emerge from the current recession?
New research from Santander Corporate Banking shows that UK hospitality and leisure firms plan to create jobs in the coming months, bucking the job-cutting trend across the UK, which has led forecasters to predict three million out of work by the end of the year.
The bank’s study shows that one in four (24%) companies in the sector plan to increase the number of people they employ before Christmas. This compares with just five per cent which are planning to shed jobs – a positive balance of 19 per cent – with 65 per cent expecting to maintain current staffing levels.
That is encouraging particularly when you consider that UK unemployment currently stands at a 14-year high of 2.47 million, according to the ONS, and forecasters predict that this will increase to a total of three million people out of work by the end of 2009.
The planned jobs boost would confirm signs of increasing optimism among UK hospitality & leisure SMEs, as recorded by Santander’s Corporate Banking Business Confidence Index, which shows that nine out of ten business owners (89%) in the sector are confident in the prospects of their own business during the remainder of 2009.
Around one in four (24%) firms claim to be ‘very confident’ and 65 per cent say they are ‘confident’. Only 11 per cent say they are ‘not very confident’. Indeed, companies in this sector expressed the highest degree of optimism for their prospects for the remainder of 2009 of any sector covered by the study. Across all industries, an average of 75% of companies said they were confident in their prospects.
Confidence levels for companies in the industry are driven primarily by turnover and profitability. Turnover is the factor most responsible for driving confidence levels in the sector, with over one in four (29%) hospitality & leisure company owners citing this as the most important indicator for them. Turnover is followed by profitability (26%) and consumer spending (16%) as the most crucial indicators.
It is therefore significant that hospitality and leisure companies claim to have been less affected by falling profits in the first half of 2009 than in other industries. Across all sectors, twice as many businesses say that they have experienced falling profits than those which have enjoyed increased profit levels (46% against 23%). In the hospitality and leisure industry, however, this experience is reversed, with 36% seeing a rise in profits while only 25% have seen a decrease.
Around one in ten (11%) hospitality and leisure firms have seen their profits rise by between 10% and 20% in the six months to June 30th while the same number have recorded a rise of more than 20%. Around three per cent have seen their profits decrease by more than 20% while 14% recorded drops of between 10% and 20%.
It is clear that SMEs have proved remarkably resilient throughout the recession despite considerable difficulty. Santander Corporate Banking research indicates that the hospitality and leisure sector recorded strong profits in the first six months of this year. It is encouraging to see that this has driven optimism and confidence in the sector and that companies are intending to translate this into job creation.
Commenting on the research, Steve Pateman, Head of Santander Corporate Banking, said: “Unemployment is traditionally a lagging indicator and is expected to keep rising even when the recession is officially over. It would appear that smaller businesses – and particularly those with a turnover of less than £5 million are emerging from recession slightly quicker than larger rivals.
“It is vital that the banking sector plays its part and helps businesses to turn job plans into reality. The downturn has taught banks that they need to build stronger relationships with their customers in order to provide solutions that will help their stability and growth. Santander has a clear strategy of building its presence in the UK corporate and commercial banking market and during 2009 we have seen a significant increase in the number of businesses we support.”
* Research conducted online among 1,049 small and medium-sized businesses between August 13th and 24th 2009 on behalf of Santander Corporate Banking by Telegraph Business Club.