In less than 6 weeks’ time Britain is scheduled to depart from the EU. With uncertainty surrounding the outcome it is not surprising that many small and medium sized enterprises (SMEs) are yet to prepare for the planned departure. In part, this is likely due to the perceived lack of guidance – the UK government has released over 80 information documents, but with the turmoil within the House of Commons it may still seem that the big-bang of Brexit will be stopped.
Over the next 5 years, the Hospitality industry is set to fare well in the wake of Brexit, in spite of the various challenges. Although it is expected that growth will be hindered and many companies will face the possibility of closures, companies are generally positive about the opportunities in the future.
So, what are the key three problems which are really facing Hospitality in the wake of Brexit? And how can the average SME prepare?
Through every report, survey and article there is a common pressing factor in the discussion of the future of Hospitality - over the next year, with or without Brexit, restaurants will have an increasingly difficult time hiring new staff.
Only two years ago, the hospitality industry was the third largest employer in the UK with an estimated 3.2 million direct employment opportunities and an additional 2.8 million indirect opportunities. Nonetheless, these jobs are hard to fill, with staff retention in the industry often being lower than 70%, significantly lower than the UK average of above 85%. Current statistics show that the Hospitality sector holds the highest percentage of hard-to-fill vacancies and chefs are currently among the top 3 hardest jobs to fill. Inconvenient working hours, low wages and perceived lack of progression are cited by UK workers as the three main reasons for this high turnover.
Prior to the referendum vote in June 2016, a KPMG study found that 25% of chefs and up to 75% of waiting staff were from EU nations. This significant amount has already begun to fall with the uncertainty surrounding Brexit, with the Office of National Statistics data suggesting migration to the UK from EU Nations fell by 43% from June 2016 to June 2017. The first quarter of 2018 saw a record fall in the number of working EU nationals.
It is expected that the cost of hires, both in recruitment and wages, will increase as positions become harder to fill and the National Living Wage continues to increase.
So, what are businesses doing to tackle this? And how can the average SME?
Think creatively about recruitment
Last month, Travelodge released a statement noting that they expect roughly 3,000 vacancies to become available over the next 5 years.  The company are now looking beyond their typical hires to try to encourage applications from parents. Peter Gowers, Travelodge’s’ Chief Executive, states the company “see vast untapped potential in parents who want to return to work… We’ve based our new programme on making it easier than ever for mums and dads to work around the school run and climb the career ladder.”
Though it’s unlikely SMEs can roll out all-new hiring schemes in the wake of Brexit, the innovative thinking of Travelodge can often be emulated in smaller businesses. More than ever it is crucial for businesses to look inward and assess what truly drives their business, not only the role of customers, but their employees and work practices. Travelodge accepted that they could be flexible with shift patterns in order to change perceptions of their employment opportunities – for an average SME a small change to the timing of shift patterns may also encourage applications from part-time workers such as students or parents.
It is highly recommended that companies take an internal review of the nationalities and plans of their staff and think ahead to what can be done to encourage staff to remain. Companies will need to fully understand the rights of their workers moving forward to ensure they are employed legally after Brexit.
Use technology to improve productivity and efficiency
An internal assessment of companies may also provide insight into productivity and efficiency. The increase of productivity can reduce the need for large numbers of staff and free up current employees’ time to tackle more prominent or customer-facing issues. The rise of technology in this instance is crucial, with key growth in the sector coming from the expansion of internet and cloud platforms, such as booking systems and EPOS.
Currently, only 34% of UK managers say they are considering automating elements of their business in order to circumnavigate the skills shortage facing the UK – an exceptionally small number when compared to the benefits.
Although key aspects of Hospitality would be lost if automation was to be fully embraced, as availability of workers declines and the cost of hiring increases it will be key for businesses to embrace systems to rapidly improve workforce management, payment and productivity. Access to a multi-skilled and flexible workforce is key to business’ success in the next five years.
2. Government Legislation and Practices
Impact of legislation and Brexit
This week across news outlets in the UK, particularly in Scotland, there has been a variety of coverage surrounding the new ‘tourist tax’ which is set to be implemented in Edinburgh. Research shows that the impact of regulations and legislation such as these and Government understanding of businesses are some of the key issues which SMEs feel they have to face. Of course, this is hugely impacted by the geo-political and economic climate.
With the exit from the European Union it is unclear which regulations which were mandatory under EU law will be maintained and which will be no longer applicable. The impact of these regulatory obligations will affect the UK market considerably, particularly SMEs in the Hospitality sector.
The impact of legislation can be seen in the introduction of GDPR legislation in May last year. The fundamentally changes to the processing and storing of personal data meant that most businesses were forced to re-evaluate their processes and systems, in addition to contacting all customers whose data they held. 67% of all SMEs surveyed by Dun & Bradstreet said the introduction of GDPR impacted their growth considerably.
After Brexit, it is likely that businesses will have to review any commercial contracts with their suppliers and make significant amendments to their internal contracts and processes. Furthermore, procurement may change which will heavily affect the Hospitality sector.
As a result of this, several UK companies are looking to introduce UK based products to replace goods from the EU. One of the key players in the industry, JD Wetherspoons, has already begun to change products such as French Champagne and German Jägermeister for British drinks.
It’s not unlikely that many SMEs can consider this an option too, to navigate any increased tariffs. To get detailed information about how to prepare your business, it’s recommended that companies look to the government website to review the relative documents available. The government offers a short survey to provide you with more specific information to your business.
3. External Business Pressures
New technologies and competition
In addition to factors which Brexit will directly impact, there are a range of external business pressures which any business faces in the current UK climate. These external factors can often have a fatal effect on SMEs and may only be exacerbated with the complexity of Brexit.
As consumer confidence and disposable income has fluctuated, there has been a steady rise in new restaurants and casual dining chains meaning competition for consumers’ attention is tough. Following the referendum in June 2016, consumer confidence fell significantly. Furthermore, high street footfall has begun to fall rapidly with the rise of internet shopping which has increased difficulties in the Hospitality sector leading to closures of several major chains. The increased competition between outlets has meant that any increases in costs for imported produce or business rates cannot be passed on to consumers.
On top of these rising pressures, there has been an unprecedented growth for mobile and online technologies within the Takeaway and Fast-food industry which has created pressure on underperforming full-service restaurants and bars. The decline in consumers spare time due to rising weekly hours of work has created a breeding ground for ‘quick-fix’ alternatives. Companies like UberEATS and Deliveroo take on average an estimated percentage of commission ranging from 21-30%. In reality, this means that companies often make losses comparative to sit-in customers.
Furthermore, the rise of external technological pressures for companies in the Hospitality sector goes beyond threat from the Food to Go sector. The rise of online booking systems and social media channels are increasingly having the potential to highly impact trade.
It’s estimated that ‘no-shows’ for online booking can reach up to 20% of total restaurant bookings in the UK and can cost restaurants thousands of pounds every month. For hotels of the sector, problems have arisen from third party online booking systems which increase competition between hotels based on prices and ratings. Although hotels look to compete on price the price of commission taken by these third-party sites is often very high, meaning profits can drop significantly. In addition to competition between hotels, there has been rapid growth of sites such as Airbnb which poses further problems.
So how can companies tackle these external problems?
It is easy to think of technological solutions as a large-scale solution to disruption, as enterprise companies have the finances to dedicate money into new, state-of-the-art systems. Dun & Bradstreet’s ‘Brexit and Beyond’ delves into this, noting that the majority of all SME’s believe that being able to utilise new technology will be vital to their success.
The outcome of Dun & Bradstreet’s findings is generally positive for an average SME. The majority of SMEs also believe that the employees currently in their business have the right skills needed to use new technology. However, confidence of being able to use new technologies declines as the size of businesses grows – ranging from 60% in businesses with less than 10 employees, down to 52% in businesses with 100 to 250 employees.
In order to combat external pressures over the next 5 years, SMEs will need to embrace processes which increase their profitability and implement effective cost controls. This includes building a loyal customer base and embracing the opportunity of technology - which provides both challenges and solutions for SMEs.
The outlook for the Hospitality industry following Brexit looks positive for those who can adapt to changes, though it will not be an easy transition for any company by any means. It is likely that changes will particularly impact small businesses the hardest, particularly with the triple threat of wage increases, inflation of food prices and failing consumer confidence. Nonetheless, if SMEs in the Hospitality sector can be proactive and innovative with their responses to the changing climate, its highly likely they can weather the storm.
 Office of National Statistics