Good news for the hospitality sector as restaurants edge back into growth

In a welcome bit of positive news for the hospitality industry, restaurant groups reported a 2.5% growth in sales in the month of March.

The boost in sales marks a hopeful shift in luck for the industry, which has endured a difficult run over the past couple of years due to rising expenses from several directions, including business rates, energy bills, and wage costs.

While the improvement offers some hope, it’s a modest one and still lags behind inflation, meaning the sector isn’t fully out of the woods just yet.

Restaurants outperform pubs and bars as spending shifts

Recent data from the NIQ RSM Hospitality Business Tracker shows that margins might be due to changing consumer trends, rather than a meaningful increase in overall spending.

It seems that Britons were more likely to go for a meal out than down the pub in March, as restaurants report like-for-like growth of 0.9%, while pubs and bars have seen a drop of 2.6%. 

‘On-the-go’ businesses have also seen a marginal 0.9% uptick, a potential sign of a consumer appetite for convenience. 

Saxon Moseley, from RSM UK, notes that restaurants are gaining ground at the expense of food-led pubs, indicating that competition is fierce where disposable income might currently be limited due to ongoing cost-of-living pressure.

And while March’s figures are an improvement on January and February, they still linger below inflation, meaning that many hospitality businesses are still seeing real-time declines in revenue.

Expansion continues, but margins remain under pressure

On a total sales basis, which includes new site openings, managed groups reported growth of 4.3%, which is just ahead of inflation. This implies that expansion is still playing a key role in top-line gains, even as like-for-like performance remains subdued.

However, this growth must be understood in the context of the persistent cost pressures facing the industry. 

While sales growth is a positive sign, businesses across the UK continue to grapple with elevated costs of food, drink, and labour, alongside structural cost pressures like business rates and high energy bills, linked to ongoing geopolitical instability.

Everything combined, the marginal growth seen in March remains modest relative to the scale of cost pressures that businesses continue to grapple with.

Confidence is fragile as summer approaches

The economic reality is also reflected in morale throughout the industry, as despite March’s good news, sentiment across the sector remains weak. 

NIQ’s latest Business Confidence Survey found that just 31% of hospitality leaders feel optimistic about the upcoming year.

Many small and mid-sized businesses are still facing tight margins, budget-conscious consumers, and rising costs. 

As summer approaches, which is typically the most profitable time for the hospitality sector, we hope to see continued growth. However, without significant relief from structural pressures such as business rates and energy bills, modest sales growth may not be enough to lift the sector out of hot water.

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Planet of the Grapes founder Matt Harris has over 25 years of experience in hospitality. Read his bi-monthly column for Startups now.

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