Costs and capacity - a challenging cocktail for UK hotels
14 December 2018
There was a mixed mood among the CEO panel at our recent UK hotels forecast 2019 launch event; Surinder Arora - Founder and Chairman of The Arora Group, Christopher Cowdray - CEO of The Dorchester Collection, Shane Harris - CEO of Jupiter Hotels, and Stephen Hanton - CEO of Saco Apartments. A number of concerns weighed on our panellists’ minds, the foremost being increasing costs, with a number of areas they were seeing significant cost pressures. First was input costs like food and utilities, where increases of up to double digits were being experienced due to the pound’s devaluation and increasing energy costs. The impact of these depended on the segment our panellists were operating in, though all thought it was difficult to simply pass increased costs onto consumers. Strategies mentioned to combat these costs included revisiting supply arrangements, looking at menus and portion sizes.
The other more pressing area was labour, which was seen as the number one concern for most of our panel. Not only were our panellists being faced with increased wage costs due to ongoing increases in the National Living Wage, but just as worrying was the increasing difficulty in finding staff to recruit, with some striking anecdotes shared in this regard, for example far fewer applications at a new hotel opening in East London.
For an industry that is reliant on labour to deliver much of the guest experience, Brexit is looming in the background like an unwanted guest. This was one area where being an operator with a less labour-intensive model, like extended stay, was seen as escaping the worst of these pressures.
Capacity was also a concern, as we would expect given the supply increases we make reference to in our UK hotels forecast 2019. As ever though, this was being felt by our operators in a highly localised way - with the greatest concern being expressed about markets where increased supply limited the ability of hotel operators to pass increased prices onto consumers, or actually put downwards pressure on certain business segments (e.g. MICE delegate rates in some regional cities). My sense is that in most markets our operators felt there was sufficient demand to soak up this increase in capacity, in marked contrast to some other areas of hospitality and leisure. Notably casual dining, where the fallout from significant increases in capacity and increasing costs has been well publicised.
Our panel was more positive about the demand outlook, with operators in all segments optimistic about seeing continued strong tourism-driven demand. Among our panellists, those in the premium London and extended stay segments were notably upbeat about the demand outlook, and hence trading performance, looking into 2019 and beyond.
For more information on our UK hotels forecast 2019, download the report. You can also find out what we expect for hotel deals from our UK hotels leader Samantha Ward and our forecast for London hotels from partner Craig Skelton.