How to protect your hospitality business in the face of rising energy costs and a reduced dining out sector

With the UK hospitality industry embracing the post-Covid-19 environment and lack of restrictions, businesses thought they could finally look forward to a normal summer. However, with the energy increase epidemic we are presently experiencing it’s understandable the restaurant industry is concerned about this new hurdle it must contend with. But before the industry can assimilate a new action plan to deal with this new issue, we must first assess the facts. Group of happy friends having fun while waiter is serving them food in a pub. Dining out is presently on the rise following the last two years of lockdowns, but the eating out sector is not due to hit pre-Covid-19 value until at least 2024. Moreover, the industry is predicted to only reach 79% of its pre-pandemic worth in 2022 according to the latest research from IGD1. This value has been calculated based on various economic markers and forecasts with the report summarising the industry will likely experience steady low to mid growth over the next five years. Regarding energy increases, the current state of play is thus: April 1st 2022 saw an energy price cap rise of 54%. The increase has been driven by the global gas price rise the world has experienced over the course of the last 6 months. During the last 12 months a total of 29 energy companies have either exited the market or been placed under special administration due to these soaring global price increases. We all know too well how this is affecting us on an individual domestic scale, but how is it impacting businesses? The straight answer, negatively. The energy spike comes at a remarkably inconvenient time for the hospitality industry as April also signals the end of the VAT reduction to 12.5% on food and soft drinks for businesses. From April, businesses now buying and selling food will be subject to the full 20% VAT rates2 that were in effect prior to Covid-19. At the same time, February also saw the consumer prices index rise by 6.2% too meaning general inflation has seen the highest increase over a 12-month period since National Statistics began in 19973. That being said, there is some relief by way of the 2022/23 Retail, Hospitality and Leisure Relief Scheme4. It will provide eligible properties with a 50% relief on business rates for 2022/23 up to a cash cap limit of £110,000 per business which could come as a welcome breather for companies. So how are businesses within the dining industry looking at combatting this seemingly imperfect storm of rising costs? UKHospitality has reported on a joint poll5 it conducted along with the British Institute of Innkeeping, the British Beer and Pub Association and Hospitality Ulster which identified the following ways businesses are attempting to mitigate these price increases: 76% have stated they are actively reducing their gas and electricity usage whilst also raising its prices to customers. 38% stated they have cut their trading hours to help reduce outgoing costs. 55% had unsuccessfully attempted to renegotiate their current energy contracts with suppliers refusing to enter into discussions regarding amending existing contracts. This all may appear bleak and like there is little point in fighting on if you are a restaurant, pub, bar, café or other such eatery, but how can you best weather all these increases without pricing yourself out of the market? We at Alliance Online would recommend the following strategies. Be Honest With Customers If you are increasing your prices to cover the increase in food costs, energy bills and general inflation then instead of putting up prices and ignoring the reasons why, acknowledge them. If your menu is now more expensive a courtesy social media post can help appease customers. It sounds daft but everyone nationwide is seeing their cost of living increasing, so let them know your business is equally being hit too. This shows customers you are treating them like adults and actively owning your price increase and validating why it is happening. It will also make customers realise you as a business are not taking advantage of the cost increases and simply hiking up your costs because you can, but rather because you need to in order to stay open. Cutting Trading Hours As per the previously mentioned poll’s findings, it may be worth considering cutting your trading hours in an attempt to curtail the impact the energy price increase will have on your business. It can sometimes be a scary concept reducing the time you operate as naturally this decreases the time you can be taking revenue. But, if you have periods where you are either empty or have a low capacity of customers, it may be costing you more just being open. We would recommend tracking your capacity over the course of two to four weeks so you can gauge whether there are any trends regarding customer volume. From there you can then make decisions on when and where you may be able cut a few hours or possibly even half a day to help reduce outgoing energy costs. Sourcing Local Produce This may not directly combat your energy usage, but it may help to reduce costs elsewhere meaning you can offset those savings against your increases in energy expenditure. Shopping local has had a huge surge in media attention over the past 2 years with many hospitality news-based outlets all drawing attention to the notion. Local produce sourcing can be a great way of making savings on food costs, the savings won’t necessarily cover the energy and inflation costs but will most certainly help ease the pressure. Investing In Energy Saving Protocols So, this option may not necessarily result in immediate savings and indeed also carries with it a large initial expenditure. Options such as solar panels are not cheap and take roughly 12 years to payback the installation fees according to Solar Together6. But once they are paid for you can enjoy periods of summer where your business may be energy neutral where electricity costs are concerned. You may even find you are operating in an energy surplus which opens up the option of either putting excess back into the grid and receiving a payment for doing so or storing it in installed solar batteries to be used at a later date. Increase Your Social Outreaching Social media can be both a help and a hinderance where businesses are concerned, but if you are not active on social media within the hospitality business then you really need to be. Use your social channels to raise awareness of your dishes, venue, drinks menu, events and more. What may help fill your tables with customers this year is reminding people of your dishes. Make up each meal on the menu and photograph them with an artistic touch. We’d recommend multiple images including an overhead shot, an angled from above shot, a side image and possibly one whilst being eaten. New and fresh images shared online give the illusion the meal is a new addition. Equally, those that have had the meal before are reminded of it and are more likely to opt to enjoy eating at your venue again opposed to going elsewhere. Ensure your social media strategy is at its best going into summer and attempt to entice diners back to your venue, thus breaking the 2-year long habit of dining in following COVID-19. Ultimately the prices have gone up and in October of 2022 are likely to be subject to a second annual increase which could be as high as 32%7. As such Alliance would recommend using the summer months where your gas costs may decrease to best plan for the winter and how you may be best offsetting the impending high costs. Use this period to push your business and try to make a plan regarding how much extra money you may need to cover these additional costs and how you are going to fund the increase too. References IGD – Recovery of the eating out sector to slow: https://retailanalysis.igd.com/news/news-article/t/recovery-of-the-eating-out-sector-to-slow/i/29563 Armstrong Watson – Changes to Hospitality VAT Rates: https://www.armstrongwatson.co.uk/news/2022/02/changes-hospitality-vat-rates Office for National Statistics – Consumer Price Inflation, UK: February 2022: https://www.ons.gov.uk/ GOV.UK – Business rates guidance: 2022/23 Retail, Hospitality and Leisure Relief Scheme: https://www.gov.uk/ UKHospitality – Skyrocketing energy costs force hospitality businesses to raise prices and cut opening hours: https://www.ukhospitality.org.uk/ Solar Together – How long until solar panels pay for themselves: https://solartogether.co.uk/london/blog/how-long-until-solar-panels-pay-for-themselves The Money Edit – October 2022 energy price cap now expected to rise by 32%: https://www.themoneyedit.com/household-bills/energy/october-energy-price-cap

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