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Beyond the balance sheet

For better or worse? Brexit is looming on the hospitality trade

Sample HubSpot User 18/7/2016 4 minute read

Matthew Wyatt explores the potential pros and cons to the hospitality trade of the UK leaving the EU.

A mandate to leave? Of those that took part in the UK EU referendum 51.9% voted for Brexit. However, it’s worth remembering that this represents just 37.4% of the UK electorate. Regardless, the debate has shifted from whether we should leave to exactly how we should go about it. What will leave look like and can we obtain what we want from our EU neighbours?

One thing is more or less certain; the UK’s relationship with the EU is going to change significantly in time. What does this mean for the hospitality trade which has over the years become so reliant on the EU for income (in the form of tourist spending) and labour (through immigration)? 

At this stage much is hypothetical but we’ve explored some current and likely scenarios to ascertain the impact on independent hospitality operators.

Reason for concern – uncertainty and consumer confidence

A big concern is that the Brexit vote has sparked a huge amount of political and economic uncertainty. Sure, we have a new Prime Minister and Cabinet but let’s not forget that Theresa May was in the remain camp while several high profile appointments to her team campaigned for Brexit. Can they now all buy into one coherent vision to deliver an improved political constitution and economic framework? Given the devisions that emerged during campaigning, only time will tell.

We might remain in the EU for now but we have no idea how our relationship with our European neighbours and the wider world will unfold in the coming years. That’s a problem because businesses and financial markets hate uncertainty. It leads to investment decisions being put off. Money that could be put to productive use is instead squirrelled away as if it were insurance for a rainy day. That in turn hurts consumer spending as employers don’t invest in their staff or raise wages.

Given how reliant the economy and hospitality trade is on the UK consumer, there’s genuine anxiety that Brexit could hit quite hard. Looking at the EU, even if we reach amicable agreements with the lead economy in the form of Germany, there are still another 26 other member nations in the European Council who have to agree to those proposals. Each country will have their own agenda and will approach any negotiations from the standpoint of their own national interests and what they can get out of it.  

Operators would do well therefore to realise that triggering Article 50 to leave the EU could be a long, drawn out affair that might run well over the stated two year minimum negotiation period. Therefore the uncertainty over our exact relationship with the EU could continue for many years to come.

Reason to be positive – a resilient sector to benefit from holidaying at home

The hospitality trade has actually proven to be very robust in the last decade. For example the industry has grown every year since 2009 and the midst of the financial crisis. This adaptability and innovation could serve it well very for any significant changes in the future.

UK annual expenditure on hotels and restaurants 2005-2015

In the short term, expect recent events to actually have a positive effect. This is driven primarily by movement in exchange rates which means the UK is now a great destination of value for Americans and European tourists, our 2 biggest markets.

On the flip side more people are likely to holiday at home in the near future because of the declining value of the pound. The purchasing power of our currency has declined meaning people’s money doesn’t go as far abroad in foreign currency as it used to. It means holidays overseas have become more expensive.

Expect the “staycation” trend that arose during the financial crisis to return. British residents will be spending more of their holiday time and money here. That will be to the benefit of UK entertainment attractions, resorts, hotels and of course the dining out sector. In that sense Brexit is good news for independent hospitality operators.

Neutral – the workforce

In the long run business owners may have to start making preparations for a potential transformation in the make up of our workforce. Like so much in this post, this is of course speculative but it rests on what happens in relation to the UK and access to the single market. Many in the Cabinet and government appear to want to maintain our tariff free trade with the EU and no doubt given the promises and claims during the campaigning, they'll negotiate hard for it.

However, the problem is the single market rests on four key pillars. One of these is the free movement of goods and a condition of that is the corresponding free movement of people in the EU zone. Can the UK really have one without the other? If not then the business community will need to reconcile itself to no longer being able to depend on an abundant supply of willing, low cost labour from the continent. That’s the downside.

The key for operators will be to form relationships with communities, schools and further education colleges in the coming months and years so as to attract more local labour. This will force hospitality businesses to value their staff more. High levels of employee turnover that have been so common to the industry in recent years could become a thing of the past.

A reduction in supply will increase the competition amongst employers for labour. What you can offer in terms of wages, training and upskilling employees could become a major selling point. It will force the trade to identify, motivate and better manage its most talented people. Given these improved prospects, staff will be more likely to remain in the sector to develop their careers.

Hospitality is all about the customer experience and staff are absolutely vital to driving that. Recognising our best talent, becoming more productive and improving the customer experience could help drive turnover and profitability. That might just end up being the takeaway of any future Brexit scenario. In the meantime best we be positive and make the absolute most of the opportunities we have!

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The content of this post is up to date and relevant as at 18/07/2016.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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