As cost pressures on the industry increase and with a return to 20% VAT on the horizon, many in the hospitality sector will be forced to pass on double-digit price rises to customers.
In a UKHospitality survey of over 340 hospitality businesses representing 8,200 venues employing 190,000 people, nearly half of operators (47%) are reporting that they will be forced to increase consumer prices by over 10% this year, with 15% anticipating hikes of over 20%. Overall, it is expected that prices across the sector will increase by 11%.
The rises come off the back of a Christmas trading period devastated by Omicron in a sector already mired in debt and low on cash reserves, following nearly two years of severely disrupted trading. The increase in prices is being driven by soaring operating costs, with businesses reporting average rises of:
41% in energy bills
19% in labour costs
17% in food prices
14% drinks prices
21% insurance costs
With a return to 20% VAT, plus a rise in business rates and higher labour costs proposed for this April, the sector’s plight looks set to have a significant impact on the UK’s economy. Hospitality’s proportionately larger weighting in the Consumer Prices Index (CPI) means that the average 11% price increase would mean a 1.7ppt rise in CPI. By comparison it would take a rise of more than 50% in energy prices to have a comparable effect.
The knock-on effect to the wider economic recovery could be significant, particularly given that confidence remains low. Over 80% of operators surveyed said they had experienced either moderate (39%) or severe (42%) levels of cancellations since the start of the year, indicating that consumers are already feeling the pinch.
UKHospitality Chief Executive, Kate Nicholls, said: “Omicron has infected the start of 2022 with lower-than-expected trading levels and higher than expected cancellations in hospitality venues. One in three businesses in our sector have no cash reserves left and are already carrying heavy debt burdens. Many of our community pubs, restaurants, hotels and hospitality venues will therefore fail as the cost-of-living crisis bites, causing demand to faulter. This can only cause the UK’s wider economic recovery to stutter.
“This April’s planned increases in VAT, employment costs and business rates are therefore likely to prove one financial burden too many for businesses who only then, as we come out of the quieter winter trading period, can hope to begin to start trading at full capacity once more.
“The industry wants to play its full part in the UK’s recovery from the pandemic but, as these latest figures highlight, we can only do that with further support from the Government - support that must include keeping VAT at 12.5% permanently.”