Hospitality leader sentiment remains cautious

Trading has been at best volatile and at worst poor in the past few months. Train strikes, unseasonal weather and economic developments have impacted consumer appetite for out of home and discretionary spending. Out of home market visits are currently being driven by low ticket necessity occasions, with restaurants suffering year-on-year declines in share. Aligned with this, 83% of eating out market leaders described current trading as challenging or extremely challenging, with positive sentiment existing for just 10% of business leaders.

Expectations for trading across the next 12 months are varied, with a larger proportion (40%) expecting conditions to remain the same. The more optimistic leaders expecting – or hoping for – conditions to improve (23%) are hanging hopes on inflation easing leading to stronger prospects for consumer spending. Those expecting conditions to deteriorate further (31%) are wary of increasing interest rates and the delayed impact these will have on consumers and businesses alike. Economic forecasts support that consumers are likely to have more in their pocket in the way of discretionary spend, but the threat of higher mortgage and renting rates has seen forecasts for GDP be notably scaled back for 2024.

Consumer spending is front of mind for business leaders in the eating out market when it comes to long term trends impacting the sector. Squeeze on household budgets and value consciousness ranked first and second in the list, with 49% and 43% selecting them as key trends. Value consciousness is being reflected through current marketing and initiative efforts, with meal deals, special prices, and loyalty a current focus for businesses. Business leaders are right to be prioritising this consumer trend, with Lumina’s psychographic of very value-led increasing by +4ppts year-on-year, as 77% of consumers currently rank as very value-led in their attitudes and behaviours.

Aside from monetary concerns, changing behaviour of younger consumers and experience-driven behaviour were also ranked as key long-term trends impacting the eating out market. Operators, especially in the licensed segment of the market, are having to do more to create an occasion for consumers to encourage them to visit and justify spending on an experience that cannot be easily replicated at home. Changing behaviour of younger consumers has seen growth in the amount of business leaders selecting it as a key trend impacting the market, with younger generations driving engagement with technology and digitalisation, low and no alcohol alternatives and plant-based diets.

New to the long-running survey in 2022 was a question around businesses experiencing challenges attracting and recruiting staff. Unsurprisingly a whopping 80% of eating out business leaders said that they were experiencing these challenges in 2022, with workforce migration led by Brexit a key contributor. A year on and 70% selected yes again, though a small improvement year-on-year, the majority are still facing staffing challenges. Over a third noted that challenges were Brexit-related, whilst just over a fifth highlighted that shifting attitudes within the workforce were a key reason. A desire for greater flexibility was a leading shifting attitude highlighted. Low pay and a perceived lack of progression were key reasons highlighted by 18%. The perception that the sector is low skilled, low pay with a lack of career development opportunities will have to shift to ease these challenges.

Rising food/ingredient costs, passing on price rises, and declining consumer spending were selected as the top three business challenges facing organisations. There is a perception among business leaders that navigating these conditions will result in a higher rate of business fatalities in the coming 12 months with 66% expecting to see an increase in business closures. Businesses are performing balancing acts between managing cost pressures and mitigating increases whilst improving experiences and not compromising quality and value.

These findings come from Lumina Intelligence’s Top of Mind report