Food for thought: the recovery of the hospitality sector

May 21, 2020

The hospitality sector has been hit hard by the COVID-19 pandemic. Adrian Crean explains how, with innovation and forward-planning, this sector can overcome the challenges it faces.

As a well-known boxer once said, “Everyone has a plan until they get punched in the face”.

March’s lockdown announcement saw the hospitality and food service sectors decimated, a sector that employs 260,000 people, over 10% of total employment, and significantly supports regional employment. According to the CSO, 70% of these businesses ceased trading temporarily or permanently. Protecting staff, minimising ‘cash burn’ and managing liquidity became the immediate priorities.

Even with the phased re-emergence from lockdown, it’s clear that things will be much different to before. The health crisis has become an economic crisis, and many businesses will not see a return to their 2019 levels until 2022, at earliest. Others will not return at all.

Businesses are having to think, plan, adapt and act fast.

The impact of COVID-19

Higher unemployment, less disposable income, reducing consumer confidence and much lower overseas tourism numbers will have a significant impact on the hospitality and food service sectors in the months ahead. If our own domestic travel restrictions could be safely lifted during June rather than July, it could provide a meaningful and much needed domestic tourist season. As it stands, however, significant planning and investment is being invested to give customers and staff the reassurance needed that the sector will be employing the highest operating standards in a safe, hygienic and welcoming environment – even if it comes at a cost.

For example, the implications of social distancing on businesses are enormous. Michelin starred chef, JP McMahon, recently highlighted that at his Aniar restaurant in Galway, setting a two-metre distancing rule in the restaurant will see capacity reduced by approximately two-thirds. Even a one-metre distance will see capacity reduced by one-third.

Social distancing in restaurant kitchens and back of house will result in simpler menus and reduced staff numbers.

These SMEs will have accumulated four months of debts without any trade and face many more months at subdued levels. Businesses will not be financially viable without burden-sharing on fixed costs, especially rent and rates. Landlords, local authorities, government, and business will all need to participate.

Innovating

In times of great crisis, we also see great innovation.

Customers will need to see a renewed emphasis on value for money. People will be more careful where and how they spend their discretionary income. All businesses should be considering three tiers to their offer – value, mid-tier and premium.

The adoption of click ‘n’ collect, curbside collection, grocery and delivery are great examples of channels that hospitality and food service businesses have opened to allow them to reach their customers, but partnering with delivery aggregators is expensive. Charges typically range between 20% and 30% of sales value. This might be manageable of it’s 10% of your business but not at 50% of it, as businesses are now facing.

Home working is here to stay. With office capacities reduced by 30% to 40%, expect businesses to rethink their location strategies. This will benefit more suburban and regional locations. Also expect to see leases with rents pegged to turnover becoming the norm. They are a far more equitable solution.

Lastly, businesses must invest in their brands. Authentic and memorable storytelling that excites and engages their customers communicated across the right platforms has never been as important.

As CS Lewis said, “You can’t go back and change the beginning but you can start where you are and change the ending.”

Adrian Crean is a non-executive director with LEON Ireland.