Wavering consumer sentiment has been a core focus during a year marred by cost of living pressures and inflation, but how confident are the sector’s leaders? In this immersive, data-driven feature, MCA takes a closer look at operator optimism, and decision-makers’ hopes and fears going into 2024, with exclusive data from Lumina Intelligence
With consumer confidence making its slow and gradual ascent from its lowest points in 2022, it’s no wonder operators have kept a watchful eye on consumers’ faith in the economy and their finances. Less talked about, however, is operator confidence, or leaders’ faith in the future of their businesses.
Research from Lumina Intelligence finds that optimism for future trading has improved among hospitality leaders, with 23% expecting trading conditions to improve in the next 12 months.
“Coming into 2023, we feel like we’ve been through hell but we’re a lot more prepared. Despite everything, there’s a lot more stability.”
Brian Trollip, managing director at Dishoom
While 23% is an increase from 17% in 2022, it remains significantly behind the 78% of operators who expected an improvement in trading conditions in 2021.
The Top of Mind Report, based on a survey of business leaders, clearly indicates operator confidence is on an upward trajectory, even if it still has a long way to go in reaching levels immediately following the lifting of Covid restrictions.
Indeed, business leaders representing sectors across the industry have told MCA they have more certainty going into 2024 than they did going into 2023.
Summarising the thoughts of the wider sector, Trollip told MCA earlier this year: “Pre-pandemic, we were thinking about what comes next…then we had a cold bucket of water dumped over our heads.
“We’re a different business out of the pandemic and we still have mountains to climb.”
Consumer confidence and value consciousness both on the rise
While penetration has dipped year-on-year, as Lumina Intelligence research has found, consumer confidence levels have been gradually improving in 2023 but remain volatile.
Double-digit inflation continues to outpace income growth, but consumer confidence has made a marked rise from its lowest level – -49 in September 2022 – as wage growth began to pick up this year.Operators support the findings from Lumina Intelligence, which indicate confidence rose from -45 in January 2023 to -25 in August.
Former Marston’s CEO Andrew Andrea also told MCA earlier this year:
“What [FY23] has demonstrated is people still want to go to their local. The momentum remained pretty consistent throughout the year.“Bearing in mind that consumers have had to absorb a lot of shocks in the past year, people continue to go out.”
Andrew Andrea , former CEO at Marston’s
Lumina Intelligence’s consumer psychometrics are aligned with a growth in value consciousness and corresponding decline in ethical consumerism. Importantly, this doesn’t mean consumers are unlikely to spend – it simply means they ensure the experience represents value.
As Blacklock founder Gordon Ker told MCA earlier this month, the business aims to provide ‘positive bill shock’ through ‘great quality and great value for money:
“We are very mindful as everyone is, that things are a lot more expensive,” Ker said. “I think people still want to go out and eat in restaurants and still have fun.”
Gordon Ker, founder of Blacklock
When asked about the most important long-term consumer trends affecting the eating out market, the squeeze on household budgets came out on top, with 45% of leaders choosing this answer compared to 58% in 2022.
Value consciousness came second at 35% but rose slightly from 29% in 2022, while the changing behaviour of consumers came in third at 25%, up from 21% the year before.
Diversification, efficiencies, and easing inflation drive optimism
Inflation is a key driver for optimism among leaders anticipating improvements in the market, with 45% of respondents expecting inflation to reduce over the next 12 months, Lumina Intelligence has found.
Inflation is a key driver for optimism among leaders anticipating improvements in the market, with 45% of respondents expecting inflation to reduce over the next 12 months, Lumina Intelligence has found.
As for other drivers, 27% of respondents cite that it is the adaptability of the sector.
Another 18% of respondents cite improving energy costs.
And 9% of respondents cite rising wages as reasons to anticipate improvements.
Moreover, businesses may have been caught unawares by rampant inflation in early 2022, but operators tell MCA they’re more optimistic partly because they’re far more prepared.
Tortilla CEO Richard Morris told MCA the business has looked at all areas from a cost perspective, while Hostmore CEO Julie McEwan similarly said a review of supplier contracts and other operational efficiencies were driving cost reductions.
“We’ve got a more engaged team in terms of being commercially astute, with an ‘every penny counts’ culture.”
Julie McEwan, CEO of Hostmore
While inflation appears to be stabilising this year, it is the “renewed focus on operations in a commercial manner that has materially improved outlook,” she added.
Another cause for optimism is that operators have learned the importance of diversification post-pandemic. Morris told MCA that Tortilla’s push into evening trade – with the launch of its ‘dinner for a tenner’ menu and happy hour offer – will bolster the top line, while Martin said trade at Wetherspoon is increasingly buoyed by coffee and breakfast sales.
Honest Burgers CEO Frank Hayes was similarly optimistic about the potential of new QSR format Honest Smashed to diversify and grow the brand.
As Arkell’s managing director George Arkell told MCA, the pandemic acted as a “bulldozer” for pub trade – meaning the 95-strong pub operator is driving revenue through initiatives such as brewery tours, online deliveries, and new letting rooms, all offering reason for optimism.
While two-thirds of professionals surveyed by Lumina Intelligence said the next 12 months will see an increase in hospitality business closures, this number was down -15ppts year-on-year – evidencing growing optimism.
Lower priority given to new initiatives
Businesses are prioritising new initiatives less in 2023 as ongoing financial challenges cause budget constraints, according to the Top of Mind report.
Less than half (48%) of leaders said sustainability initiatives were being prioritised in the next 12 months, down significantly from 76% in 2022.
However, the findings are likely to be impacted by the rush to invest in sustainability in 2022 due to skyrocketing energy prices – meaning such initiatives are less of a priority going into 2024.
Mowgli Street Food CFO Matthew Peck told MCA the business earlier this year the business is focused on retrofitting electric kitchens throughout its estate, while Sura told MCA that Burger & Lobster’s refurbishment programme last year saw everything from equipment to lighting designed for energy efficiency.
On the other hand, Caravan Restaurants CEO Laura Harper-Hinton said the business incorporating sustainability in its core from the very beginning, from creating recyclable or fully compostable coffee pods to taking beef off the menu in 2015.
However, MCA finds that some businesses keep making investments, although some initiatives seem less achievable amid the current cost environment for SMEs.
Bigger businesses such as Greene King continue to invest, with the pubco launching a new platform this month to boost engagement with suppliers on all aspects of environmental, social, and governance, and to build collaboration and innovation in the wider sector to reach net zero.
Furthermore, Star Pubs & Bars announced its aim earlier this year to decarbonise its estate of 2,400 pubs by 2040, aligned with Heineken’s ‘Brew a Better World’ net zero ambitions, while Greggs has rolled out sustainability initiatives from its first eco shop to more than 250 shops as part of its 2025 sustainability goals.
An upward trajectory
According to the 2023 report, a strong majority – 83% - of hospitality leaders expect challenging trading conditions to continue into the next 12 months, despite the rise in optimism.
However, in comparison, this number stood at 92% in 2022 and 93% in 2021 – again evidencing that a lower percentage believe trading conditions will get worse, despite challenges.
A perfect storm of pressures may have hit hospitality over the past few years, but it’s clear operators believe the only way left to go is onward and upward.
As Andrew Andrea told MCA earlier in the year, the pubco sees a higher degree of “stability and visibility” in terms of the cost outlook for FY24.
Echoing the sentiment of the wider sector, Andrea added:
“We see opportunities to further introduce efficiencies, and a much higher degree of confidence in cost stability. We’re overall encouraged by the resilience of the consumer.”
Andrew Andrea , former CEO at Marston’s
