The minimum wage increase: Kate Nicholls on how hospitality can still thrive

Passing the cost onto the customer

Nicholls emphasised that whilst businesses might feel it’s risky, it’s inevitable that part of this cost will have to be passed on to the customer.

“Only half of the cost increases we’ve been facing have been passed through to consumers by way of price. So businesses are really holding back on increasing pricing.

It’s because of the natural concern around whether rising costs will be a tipping point for the customers they see coming through the door. Are we pricing too high? Are people not spending enough because of the price?”

But as Nicholls pointed out, there’s undoubtedly going to need to be an increase in prices to protect those margins.

Nicholls stated it’s “not sustainable” to keep delaying increasing prices for consumers

“It’s not sustainable otherwise. We’ve seen the margins for operators squeezed. In fact our last survey found a third of businesses have no cash reserves at all – that’s doubled over the last two quarters.”

Of course, customers never want to see higher prices, which Nicholls didn’t deny. She also highlighted that misconceptions around inflation might lead to them actually expecting lower prices.

“Consumers don’t understand inflation,” she said. “They see inflation going down and think prices should fall. Inflation being at 4% still means prices are going up.”

To help balance public expectations and the necessity for hospitality to increase prices, Nicholls explained how her organisation – UKHospitality – will be out campaigning.

“We as a trade body will be doing media and PR to help businesses explain those price increases that will inevitably have to go through.”.

Why hospitality can remain positive

But it wasn’t all about such difficult balancing acts. The latter half of Nicholls’ speech focused on the silver lining that’s becoming brighter for the hospitality industry in the face of the significant labour cost increase.

“This is where I’m going to be more positive,” she said. “There are reasons to be cheerful, despite the dark clouds of that perfect storm.”

Travel and business demand is growing

“Firstly,” Nicholls explained, “global travel is reopening, and coming back stronger and faster than anticipated. The forecast for this year for international visitors is that we’ll get back to 96% of pre-COVID volume, and 120% of pre-COVID spend.”

“That missing 4%, is from those markets that haven’t fully returned, in particular China. But we see growth still coming through from South East Asia, and North America is still really strong.”

And despite the cost of living crisis, there’s strong intention from UK consumers.

“60-80% say they will take a UK stay this year. This boom will contribute significantly to the UK hospitality market.”

Increasing business travel is good news for the industry when it comes to capturing increased custom.

“We’re also seeing the return of business travel, which was another missing piece. We can be optimistic about business travel and trade shows because the guests add leisure and hospitality on top of it. They include a Saturday or Sunday night: it’s called ‘bleisure’. It’s one of the new trends we are seeing come through, and we’re well placed for that.”

Consumer confidence is increasing, too

Consumer confidence – particularly in eating out – has remained strong.

“We poll 2.5 thousand consumers every month about their sentiment,” Nicholls explained. “And the top thing they say they’re going to do if they have disposable income is go and eat out, and socialise with family and friends. That’s still their top priority.”

“That disposable income squeeze isn’t hitting the high street as much as we feared it would. People aren’t coming out as frequently as we’d like – but we’re seeing a positive trend. When we see that upturn come, we know they’ll come out and eat out.”

Nicholls went on to highlight that 93% of consumers they poll are now back eating and drinking out monthly, 47% back at least weekly, and this is only increasing.

Politically and economically over the worst

“The upcoming general election will bring more stability and certainty,” Nicholls stated, which will help businesses reach a more secure position to fight the effects of the minimum wage increase.

“We’re seeing a steady reduction in inflation. The latest forecast is that inflation will be back at target in the first half of this year. Interest rates will come down shortly after that. So by the time we get into summer consumers should be feeling a little better about the economy.

Plus with NIC cuts coming through in pay packets from April, the average earner will be £900 better off. Trends suggest that when they do feel better off, they will come back into the high street first.”

The minimum wage increase: final say

Nicholls ended her talk by reiterating the value that – despite the significant labour cost increase – the hospitality industry can deliver if consumer confidence continues to rise, those government initiatives are pushed through, and operators use the full set of tools available to them to boost revenue.

“If you get the conditions right, hospitality can go back to doing what it does best – which before the financial crash meant generating one in five net new jobs, £15 billion investment in the high street, and opening two venues a day.”