Key challenges in hospitality
The challenges facing the hospitality industry have been well publicised, and the issue certainly isn’t limited to Ireland with the rest of Europe fading all too familiar challenges.
With hospitality businesses in Ireland facing potential increased costs of as much as 19% over the next two years due to increases in the living wage and a cost of living crisis that has left consumers struggling to justify the cost of certain ‘luxuries’ have created a perfect storm that has resulted in a wave of hospitality closures
For hospitality businesses, the key to surviving the cost of living crisis lies in understanding what current trends are telling us about what’s likely to happen next. In looking to the future, we can find opportunities to:
- mitigate new challenges
- improve cost management
- identify where investment is most likely to add long-term value
Inflation
Spiraling operating costs have hugely impacted profit margins across the industry.
In the 12 months to July 2022, food products for the hospitality sector were reported to have risen by 8.1% and the same year saw energy prices increase to 60% higher than the EU average for non-household electricity prices in Ireland.
Since then, it has been generally slowing, and the outlook is somewhat positive with the annual inflation rate in Ireland reaching a new 30-month low of 3.4% in February, down from 4.1% the month before. Inflationary measures are set to take effect and economists are optimistic that the downward trend will continue throughout 2024, with predictions by the end of the year at 2% in 2025.
Staffing levels
Recruitment, retention, staff turnover... These were always an important focus in the hospitality industry, but they are now words that likely haunt the dreams of hospitality operators.
The cost of turnover in hospitality is huge. It’s not just the hiring, onboarding, and training costs to consider; there’s also the impact on customer service, and additional pressure on existing staff during the process.
Last year it was reported that the Irish tourism group Itic called for increased availability of working permits to boost the hospitality sector as Ireland reaches full employment creating a need to source workers to support tourism and hospitality from abroad. According to the Hotel and Restaurant Times, there are 40,000 vacancies in hospitality in Ireland following the pandemic. Combine that with the increased living wage and employment costs anticipated for the coming year, and it’s easy to see why staff shortages and costs are one of the key challenges facing hospitality businesses.
Wage increases
The National Living Wage increased on 1st January 2024, which saw the national minimum hourly rate becoming €12.70 for employees aged 20 and above. At the same time, sub-minimum hourly rates for employees aged under 20 now sit at €11.43 for 19-year-olds, €10.16 for 18-year-olds, and €8.89 for those under 18.
As the cost of living continues to impact employees, many are looking for higher wages, and employers who wish to retain talent will have to respond accordingly.
Consumer spending
Rising costs over the past few years have seriously reduced consumer spending power, and as we enter 2024, and inflation slows, interest rates are putting further pressure on consumers, who find themselves with even less disposable income.
Despite all this, Irish consumer confidence is actually at its highest level in two years as reported in January 2024. Suggesting that anticipated changes to costs will be reflected in their consumer spending through 2024.
Which is likely music to the ears of the 44% of Irish businesses who reported that they are not optimistic about the outlook of Ireland’s economy in 2024. Research conducted by the IHF highlighted the pessimistic view of Irish hoteliers, with 79% concerned about the outlook for the global economy and potential impact on their business. Shining possible concern on the strength of tourism in 2024.
While confidence is returning, it’s vital to stay competitive. It’s becoming clear that customer expectations of hospitality establishments have shifted; they increasingly want experiences when they go out. It’s not all about the food or drink, and hospitality businesses need to deliver. Finding ways to elevate the customer experience from the moment they enter your premises is vital. Prioritising staff training and customer service and creating an inviting and inspiring environment will give people a reason to come back time and again.
New regulations
Savvy hospitality leaders will be keeping a close eye on government legislation and calculating the potential costs of new laws to their businesses.
As well as minimum wage increases several new staffing measures will likely incur costs for hospitality operators. Such as enhancements to paid sick leave requirements, pension auto-enrolment, and additional Enhanced Reporting Requirements that came into effect on the 1st of January 2024.
Regional variations
Hospitality cost of living challenges also vary by region. For businesses operating multiple sites across Ireland and the UK, it’s important to understand the shifting trends and available support to allocate resources over the coming years.
The impact of tourism can lead to discrepancies in disposable income, consumer spending by region and distribution of resources. This inequality can lead to extra challenges for more rural regions where the general upward trend in consu
Similarly, staffing challenges can be more pronounced in rural areas further intensifying difficulties in fulfilling positions. Drinks and hospitality employment in Ireland has actually experienced substantial growth compared to other sectors, but with Dublin holding a disproportionality high share of national accommodation and food services jobs – this doesn’t necessarily reflect the experience of operators nationally.
There is ample reason for optimism though with Tourism Ireland announcing ambitious plans to increase the overall economic value of overseas tourism to Ireland, growing revenue by 5.6% per year up to 2030 across all regions.
Could a reduction in VAT help?
The sector has been united in its ask for a return to lower VAT rates in response to the challenges outlined above. Under the last budget, the VAT rate for hospitality was raised from 9% to 13.5%, removing the lower rate implemented to support businesses in the wake of the pandemic. However, with Finance Minister Michael McGrath ruling out any changes to VAT taxation rates in 2024, operators should be prepared to look for ways to reduce operating costs internally.
A digital future in hospitality
As the cost-of-living crisis continues, more and more hospitality businesses have seen the potential of technology to help them navigate their current challenges. Many are taking advantage of new technologies to upgrade the customer experience, increase staff retention, improve their procurement practices, and ultimately make the business more efficient and profitable. Those who don’t are likely to be left behind.
Here, we will look at some of the key steps you can take right now to secure the future of your business.
Reduce food waste
Food waste is a massive issue in hospitality, with many businesses quite literally throwing their profits in the bin each month. Utilising Food Waste Management Software can help you track waste across multiple menus and sites, to identify opportunities to save money.
The right technology can help with ordering, stock control, and inventory management, giving you the information you need to cut down on food waste.
Review your procurement processes
Centralising your procurement across sites gives you better economies of scale, meaning you can negotiate better deals with suppliers. It’s also important to regularly review your supplier list to ensure you’re getting the best value for money.
By adopting hospitality procurement software, you centralise and simplify the entire procurement process, helping you to reduce food costs and manage invoices and costs from one place.
By taking some time to ensure your procurement processes are optimised, you will save money and find ways to reduce waste and overspending.
Menu engineering
Technology can help you to optimise your menus by tracking the best-performing items and measuring sales and pricing against food costs.
Menu Engineering allows you to be responsive to shifting trends, fluctuating costs, and customer demand. For hospitality businesses who are concerned about the cost of living challenges, menu engineering software can offer significant opportunities for maximising profitability.
Forecasting
82% of companies that go out of business say that cash flow management was the reason. That’s a sobering statistic, and it makes it clear why it’s so important for hospitality businesses to plan and stay on top of their forecasting.
By making use of accurate reporting, you are in a better position to forecast customer demand and revenue and adapt accordingly. Purchase-to-pay software can support you with all of this.
Optimising operational efficiency
We can all agree that contingency planning and risk mitigation is a good survival strategy, but in a climate where costs need to be kept low and customer experience is critical to success, increasing operational efficiency across the board is a must. Hospitality checklist software enables businesses to standardise and digitise routine checklists that keep operations running smoothly. Not only does this enhance the efficiency of staff keeping on top of daily tasks but improves visibility of task completion, meaning your venues are cleaner and safer for guests. With a digital overview, operators are also able to identify areas that need improvement or that are taking a lot of time away from teams delivering service to your guests.
Improve your staff onboarding processes
We’ve already mentioned that there is a huge rate of turnover for new starters in the hospitality industry. If you can get an employee to stay beyond 90 days, you are 50% more likely to keep them. So, the onboarding process is a critical part of any good recruitment and retention plan.
If you are struggling with turnover costs in your business, and you want to know if your onboarding process is part of the problem, the first thing to do is seek feedback from your staff. Gathering anonymous feedback can help you to see where the gaps are and build a more robust process.
Through better onboarding and training, your staff will also be able to deliver a superior customer experience, helping you to build better brand loyalty.
What next?
In this article, we’ve explored some of the key challenges that the cost of living has inflicted on the hospitality industry in Ireland. It’s clear to see that while there have been far-reaching consequences for the entire industry, there is light at the end of the tunnel. Now is the time for hospitality businesses to look for innovative solutions to some of these challenges to ensure their survival.
If you are ready to review your technology needs and explore the best software solutions to help you survive the cost of living crisis, get in touch with us.