A diverse range of national leisure companies appear to be caught in the Brexit headlights, defaulting to business as usual as they struggle to predict the long-term impact of Brexit on customers, employees and the bottom line.
Forecasting the future is hard enough when we have to consider the weather, terrorism and consumer spending trends. The potential impact of Brexit just makes it even harder.
We are now more than half way between the United Kingdom’s vote to leave the European Union and the March 2019 exit date, and it is still far from certain how Brexit will turn out, especially for the leisure sector. From a U.K. perspective, there are vast numbers of EU nationals working in the hospitality industry, supplier and commercial contracts with European entities to review, and the attractiveness of the U.K. as a tourist destination is also under the spotlight. All of these factors could affect operations and revenues of leisure proprietors.
UK consumers feel the pinch
The impact of Brexit on consumer spending won’t be uniform across the globe. European tour operators have seen a softening in demand from British holidaymakers avoiding ‘imported inflation.’ They still value their summer holiday and won’t give it up lightly, but they may approach it differently. This may mean selecting cheaper and new destinations or opting for shorter holidays. The weak pound has made trips abroad more expensive and as a result some are even turning to ‘staycations’ instead, especially for their secondary holiday.
A slowdown in real wage growth has also hit the pockets of many British consumers. With less disposable income, cautious U.K. customers are tightening their purse strings across the board, abstaining from both overseas travel and leisure activities close to home. When it comes to eating out, for example, pub and restaurant revenues are at risk. For several months now, growth figures have remained largely stagnant, with some companies even tipping into the red, and facing multiple site closures. Forward-thinking executives of pubs and restaurants are taking heed from retailers who are varying their product mix to suit different budgets. Menu engineering, for instance, is a viable strategy.
International tourism defies the odds
However, Brexit hasn’t been all doom and gloom. Far from it. Inbound tourism is on the rise. London’s hotels were booming until the end of 2017. The pound’s slide led to the number of overseas visits almost reaching an all-time high. Yet despite this lift in earnings, some domestic players are beginning to cast doubts. They are unsure as to whether this Brexit-driven boost to U.K. business can be sustained. One high-end department store in central London, for instance, is thinking about Ramadan 2019 and the impact any Brexit cliff edge chaos might have on tourists from the Middle East. Asian visitors to Europe book even further ahead, so it is clear that any Brexit ripples impacting the tourism industry will continue to be felt for some two years to come, at least.
The labor market faces challenges
As Britain’s official withdraw date from the EU looms closer, cost pressures for leisure businesses are also mounting behind the scenes. Staffing will become one of the biggest issues for U.K. leisure companies, partly because each pound is worth less at home for EU citizens, partly because some people say they feel less welcome, but mostly because people don’t have certainty over their future. While it is clear some people are leaving, the far greater impact is those who have decided not to come. A depletion of the talent pool is forcing leisure companies to compete with other sectors for candidates, which places upward pressure on wages. Furthermore, revisions to the national living wage and new pensions requirements are set to push labor costs even higher.
An opportunistic outlook
Up against a number of obstacles, a diverse range of national leisure companies appear to be caught in the Brexit headlights, defaulting to business as usual as they struggle to predict the long-term impact of Brexit on customers, employees and the bottom line. But even consciously deferring a decision is a more active strategy than crossing one’s fingers and hoping for the best. Some businesses are thinking of innovative ways to balance supply and demand more effectively, as they recognize the importance of keeping customers happy (and therefore spending) and making sure employees from the continent feel welcome and reassured.
Ultimately, agility will become the name of the game as the leisure sector combats this seismic shake-up. Whether it’s pubs and restaurants, hotel groups, tour operators, or other hospitality vendors, being willing and prepared to adapt will be a key differentiator that determines success in the face of the unknown.
The full article is available on https://home.kpmg.com/uk/en/home/insights/2018/03/global-leisure-perspectives.html.
Will Hawkley is U.K. and Global Head of Leisure & Hospitality at KPMG and has been with the company working with clients across the sector for 17 years.
Tina Haller, Senior Manager Deal Advisory KPMG Germany, has over 15 years of experience advising clients on hospitality and real estate projects.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.