Our latest UK hospitality sector report published last November highlighted a marked deterioration in the industry’s finances, as well as a worrying reduction in its size. We speculated that the outcome of the key Christmas and New Year trading season would be vital for prospects in a challenging year ahead in 2025.
We are now beginning to get a sense of how the festive season has gone, although still only through top line sales numbers rather than the more important data on profits, which will inevitably take longer to emerge.
UK hospitality sector data for the festive season
The CGA RSM Hospitality Business Tracker covering the holiday period reveals a modest 3.2% year-on-year increase in like-for-like sales in December 2024. Drink-led pubs did best with sales growth of 4.7%, comfortably outperforming restaurants (+1.6%) and bars (+1.3%).
The overall sector figures from the CGA RSM data hide what appears to be an important disparity within the industry. Some of the major hospitality groups have reported far higher sales gains. Mitchell & Butlers claim 10.4% growth, Fuller, Smith & Turner 10.2% and Wetherspoons 6.1%. This suggests that other major groups and more worryingly, smaller chains and independents may have done less well.
As with the retail sector, news headlines don’t always tend to include the reality of profitability when highlighting sales figures. Based on the CGA RSM numbers, hospitality businesses will have struggled to earn significant additional profits from their December revenue increases and some may even have incurred losses in this vital peak period.
Hospitality was among the worst hit sectors after the rise in the National Minimum Wage in April 2024 and has suffered savage inflation in the input prices for ingredients and other above-the-line items. Price rises for customers will have gone some way to covering these cost increases, but many restaurant and pub operators were complaining about squeezed profit margins and higher overheads even before last October’s Budget.
The impact of Budget cost increases
The trade body, UKHospitality has estimated that the various revenue raising measures and the major increase in the National Minimum Wage (NMW) announced in the October Budget has added £3bn to the cost base of the industry.
Unlike in some other sectors, reducing staffing to offset this is difficult without impacting the service standards that are so important to customer satisfaction and loyalty, reducing pay is equally challenging when so many staff are on the NMW and raising prices further, when the cost of living crisis may have eased but is far from over, could be dangerous. The brewers, Youngs grabbed headlines by announcing an increase of 20p on the cost of a pint in their pubs.
How does this affect consumer confidence?
The long running and well respected GfK Consumer Index fell sharply in January 2025 from -17 to -22. In the words of the press release issued with it, this reflects “steep falls in perceptions of wider UK economy as consumers see dark days ahead”.
It will remain to be seen how these adverse perceptions impact the willingness of consumers to commit their precious disposable income to eating and drinking out, but the prospects are not good.
Are there more insolvencies?
Insolvency filings in 2024 fell across the whole UK economy, dropping by 5% on 2023, but failures in hospitality moved the other way, rising by 4% to 3,555 insolvencies. The sector has suffered more than almost any other from a succession of adverse events: the pandemic lockdown and uncertainty, the supply chain disruption and soaring energy prices caused by the Ukraine war, labour market shortages, rampant inflation, rapid interest rate rises and the impact of the cost of living crisis on its customers’ spending power.
Now it must deal with the heavy burden of the Budget cost increases, which will surely push too many vulnerable businesses over the edge.
How will hospitality fare in 2025?
2024 was a lacklustre year for hospitality in the UK, but that may be the best the sector can hope for this year as cost pressures and cautious customers threaten both revenues and, more importantly, both profitability and viability. The reality may be grimmer than that, but restaurateurs and pub landlords are ever resourceful, so many will find ways to survive and will thrive despite the difficulties they face.
Taking advice – and getting it early
However serious the situation at a business may seem, or how overwhelming the problems are for its hard-pressed owners and managers, there are often solutions which deliver a positive outcome. Getting input from experienced, independent experts can be a tough decision, but handled in a timely fashion and with the right advisers, it should be the best way forward and result in a net benefit.
If you are considering professional advice for your business, Opus is here to provide independent assistance. You can speak to one of our Partners, who can discuss options with you. We have 14 offices nationwide and by contacting us on 020 3995 6380, you will be able to receive immediate assistance from our Partner-led team.