Hospitality crisis as a third of consumers cut back on bar and restaurant spending

Startups survey finds 35% of customers say they will spend less on hospitality and leisure businesses as a result of rising energy bills.

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As the cost of living crisis continues to squeeze UK households, small businesses could bear the brunt as consumers will be making fewer purchases, according to an exclusive survey carried out by Startups.co.uk.

We asked 1,150 people which areas of spending they have already cut back on, or plan to cut back on, in the face of rising inflation and energy costs.

Spending less on ‘going out’ – defined as visiting bars, restaurants, cinemas, and theatres – was the most common answer amongst those consumers looking to reduce their 2022 household spending.

Just 13% of people said they plan to continue as normal in the face of rising energy bills, indicating that the majority of respondents expect their spending level to change as a result of the crisis.

Hospitality firms bear the brunt of inflation

Earlier this month, we reported on the phenomenon of ‘Lunchflation’ – cafes and restaurants in the UK having to introduce notable price hikes over the last year.

Some food items, such as soups and salads, have increased in cost by as much as 36% and 34% respectively.

Now, our data shows that consumers are changing their eating and drinking habits as a way to counter the increase in prices.

Hospitality and catering businesses – already facing other challenges in the shape of staff absences and low employment figures – now look set to deal with a potentially catastrophic drop in sales.

According to ONS data, job vacancies in hospitality were 64.6% higher in the last week of May 2022 than they were during the same period in 2019.

Earlier this month, Kate Nicholls, chief executive of industry trade group UKHospitality, warned that more than 10,000 pubs and restaurants are at risk of closure, and that 30,000 are operating with no cash reserves.

Retail therapy not enough to heal consumer bank accounts

Retail and wholesale trade is another area where small businesses are under threat.

Our research found that 7% of customers plan on taking fewer shopping trips for products including clothes, as another technique to stave off the increase in fuel and energy costs.

Julia Usher is managing director at Ashes Memorial Jewellery, a small manufacturing and ecommerce jewellery business. Usher says that rising costs are a big concern for the business.

“My business is very much in the luxury spend sector and it is already under pressure owing to rising energy, food and fuel prices, meaning consumer purse strings are tightened.

“I think that this year is going to be very difficult for all SMEs and hard decisions will inevitably have to be made by business owners across the country to protect themselves.”

Stay at home to save cash

Surprisingly, just 3% of respondents said they would limit their budget for television streaming subscriptions.

That’s not to say that the streaming industry doesn’t have its wounds. Earlier this year, streaming giant Netflix announced 200,000 users had cancelled their memberships – its first loss in 10 years.

Still, our research suggests that the general public will be investing in ‘stay-at-home’ activities, as a way to save money otherwise spent on experience-led purchases like dining out.

Recipe box deliveries, toiletry sets, and other subscription-based services are likely to see a surprise boost in sales as a result of this new budgeting method.

Here are the full results from our survey:

Spending area most likely to cut back on% responses
Going out (e.g. bars, restaurants, cinema, theatre)35%
Holidays25%
Food and drink5%
Shopping (eg. clothes)7%
Television/streaming subscriptions3%
Gas and electricity use12%
Continue as normal13%

How can SMEs budget for a drop in sales?

The government’s announcement of an emergency budget earlier this month promises a generous consumer support package of £400 per household to boost confidence and encourage spending.

However, the discount will not be given out until October and no other support has been offered to help small businesses survive the difficult economic conditions ahead.

Until that support materialises, there are some clever operational techniques SMEs can use to manage the reduction in trading.

You might be able to offer special promotions or discounts to match your customers’ new budget constraints, for example. Should margins be too thin for this, you might instead carry out a simple market research project to plot methods for targeting new audiences.

Our guide for how to budget in the cost of living crisis has more information on the steps you can take – both big and small – to combat increased prices across the supply chain.

Helena Young
Helena Young Senior Writer

Helena "Len" Young is from Yorkshire and joined Startups in 2021 from a background in B2B communications. She has also previously written for a popular fintech startup.

Included in her topics of interest and expertise are tax legislation, the levelling up agenda, and organisational software including CRM and project management systems. As well as this, she is a big fan of the films of Peter Jackson.

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