Whether you are a cosy café owner, a bustling restaurant and bar proprietor or you run a seaside fish and chip shop, hospitality businesses across the UK all face a similar challenge: how to address the ever-rising cost of doing business. Wages, energy bills and supplier prices are all climbing, placing overwhelming pressure on margins and leaving business owners with difficult decisions to make.
Though the hospitality sector has demonstrated remarkable resilience in recent years, bouncing back from the unprecedented challenges of the pandemic and adapting to new customer habits, the current economic landscape demands a new level of agility. Inflation is still running above the Bank of England’s 2% target, and to ensure a successful and sustained roadmap to a prosperous future, businesses will need smart planning and creative thinking.
In this article we take a look at tackling the pressure points on hospitality businesses, but the headline guidance is actually relevant to most SME businesses in some guise.
What are the pressure points?
Perhaps the most significant cost pressures in today’s society arise from changes to employment-related expenses. Increases to employer National Insurance (NI) contributions and a lower threshold for payments mean that even part-time or seasonal staff now cost more to employ. Coupled with the ongoing commitment to fairer pay, through higher minimum and living wage rates, labour costs are now tighter than ever.
While energy costs are less volatile than they previously were during the height of the energy crisis, they remain high. Many businesses are still tied into expensive fixed-rate contracts or face a sense of uncertainty in the open market. Food and drink suppliers have also passed on their own cost increases, affecting the affordability and availability of core ingredients.
Five tips on how to respond
While there is no immediate cure for these issues, hospitality businesses can take some steps to reduce the impact of rising costs and protect their bottom line. Here are five key areas to consider:
1. Reviewing your employment strategy
Labour is still one of the highest costs for businesses operating in the hospitality sector, so getting your staffing right is crucial. To do this, you could utilise workforce management software to optimise rotas. Other options include cross-training employees to cover multiple roles or reviewing whether certain roles could be offered with flexible hours or part-time contracts.
In some cases, salary sacrifice schemes, such as those supporting pensions or electric vehicles, can offer tax and NI savings for both you and your employees. If your business employs apprentices under the age of 25, you can also benefit from NI exemptions, while other tax-efficient schemes, such as cycle-to-work or childcare voucher schemes, may prove valuable for staff retention.
2. Understanding and utilising reliefs
You must stay ‘in the know’ of the tax reliefs and allowances available to your organisation. For example, the Employment Allowance provides eligible employers with a reduction in their NI bill. While this won’t offset the full extent of recent cost rises, it can help reduce some payroll costs.
Other reliefs, such as capital allowances for investment in energy-efficient equipment or grants available for low-carbon upgrades, may also help to reduce long-term costs.
3. Revisiting your pricing strategy
This can be one of the more challenging areas to navigate. Balancing affordability with profitability is no easy task, but it is one that cannot be disregarded in the current climate. In many cases, it may be that you need to adjust prices to reflect increasing operating costs. Transparency with customers about why prices are changing can help ease the transition.
Additionally, reviewing your menu can also deliver efficiencies. For example, removing low-margin or labour-intensive items, reducing complexity in preparation and focusing on high-margin dishes can help to streamline operations and improve profitability.
4. Auditing overheads and supply chain costs
A thorough and detailed review of your regular outgoings, from utilities and cleaning contracts to internet and waste collection, can reveal hidden opportunities to save. Renegotiating with suppliers, exploring group purchasing options or switching to more competitive providers may help to reduce your fixed costs.
More often than not, energy is a particular area of focus. Consider shopping around for better tariffs when contracts expire and, where possible, invest in energy-efficient appliances or even solar panels to reduce long-term reliance on the grid.
5. Embracing your technology strategy
In today’s world, digital tools play a significant role in boosting efficiency and enhancing your customer experience. From self-service ordering systems and mobile loyalty apps to inventory tracking and integrated payroll solutions, technology can help to reduce your manual admin, cut waste and free up your staff for higher-value tasks.
Looking ahead to the future
The UK’s hospitality sector is no stranger to challenges and has faced adversity many times in the past. Yet, its success has always rested on adaptability and an understanding of customer needs and requirements. Given current conditions, these qualities matter more than ever.
While many businesses are rightly focused on survival at present, this moment also offers opportunities for strategic growth. Mergers or partnerships can offer economies of scale and stronger bargaining power. Some businesses may find scope to expand if competitors reduce trading or close down, though this must be approached with caution and a clear understanding of financial risks.
There are also calls across the sector for greater government support, particularly in areas like VAT reform and energy price protection. Whether or not change is forthcoming, it’s clear that those businesses that adapt quickly and efficiently to this new landscape will be best placed to succeed.
By reviewing costs closely, exploring new efficiencies and investing in the right people and tools, businesses can not only weather the storm but emerge stronger on the other side. Rising costs may be the current reality of the sector, but smart choices now can ensure they don’t dictate your future.
With the right advice and a proactive approach, there are still opportunities to thrive. If you’d like to explore how we can support your business during these challenges, please get in touch with Martin Jones or your usual UHY hospitality sector specialist.
Prosper issue ten
This article is taken from Prosper, our latest publication written by our team of experts. We share insights on the economic and social trends shaping the business landscape, from the continuing “silent squeeze” of frozen tax thresholds and allowances, to a decade of Making Tax Digital and what the next phase means for SMEs and individuals.
Read and download Prosper issue ten for more insights.
