A Critical Analysis of the Hospitality Industry

Updated: Aug 24

Written by Paolo Viselli and Faiza Sharif


Introduction


The UK hospitality industry can be split into four main sectors;

  1. Lodging

  2. Food and Beverage

  3. Travel and Tourism

  4. Recreation

Lodging


The lodging sector consists of hotels, hostels, and campgrounds, all of which provide some form of accommodation for consumers. Prices can vary greatly as well as the quality of services being offered. The Ritz, for example, can charge up to £5,000 per night for a suite, while a budget hotel like Ibis can charge as little as £29 per night.


An interesting development in the market is the emergence of Airbnb, which essentially acts as a marketplace for accommodation owners to give spaces out on short term rentals. In little over 10 years, it has become a $31 billion company, surpassing the likes of Hilton and IHG. Primary consumers in London include tourists as well as those traveling for work related reasons.

Food and Beverage


This sector refers to restaurants, bars and other eateries. Example firms within this sector include chains of pubs such as Wetherspoons, or fast food providers like McDonalds or KFC.


Recently the market has been affected by the activity of third party delivery services such as Deliveroo or Uber Eats. These firms have given access to a large variety of food much easier, perhaps leading to growth in the sector. Consumers include both locals and tourists.

Travel and Tourism


The travel and tourism industry includes the likes of resorts, theme parks and museums. Examples within the UK include attractions like Legoland, Madame Tussauds, the Natural History Museum and many more. It is important to note that many of the attractions in and around London are owned by the same company, Merlin Entertainments, and therefore they group their attractions together to offer a ‘Merlin Pass’ which allows access to most of their attractions. This is something that smaller firms (or those not affiliated with Merlin Entertainments) in the sector need to compete with. The primary consumers mostly consist of tourists and first time visitors to London.

Recreation


This sector within the hospitality industry consists of theaters, clubs and cinemas. Theatre in particular is very prominent in London’s West End, including historical theatres such as The Old Vic, and Victoria Palace. Consumers include both locals and tourists.


Market Statistics

Lodging

Figure 1- Number of Hotels Opening

As seen in Figure 1, the number of hotels opening has increased in the past three years, after a downward trend after the 2008 Financial Crisis.

This may be both positive and negative news for small businesses within the sector. However, the average hotel occupancy rate is 77% despite a rise in competition (Statista, 2018). This is a promising sign to small businesses within the industry, as the supply of hotels is matching the growing demand.

The turnover of hotels and similar accommodations in the UK has also increased year to year from 2011 to its current point of £19.4 billion. These figures suggest it is a good time to be in the hotel sector.

Figure 2- Growth of Food and Beverage Industry

Food and Beverage


This industry has also seen significant growth. In 2015, annual turnover was 86 billion euros as seen in Figure 2. The size of this industry is supported by consumer spending in restaurants and cafes which in 2017 was £85 billion. This is good news for a small firm operating in the market, as it is clear that generating demand is not an issue if a firm is experiencing problems, rather the branding and marketing.


Travel and Tourism


The travel and tourism sector has an annual economic impact of £6.5 trillion worldwide, and as the effects and impacts of globalisation become more clear, this number is most definitely set to rise. London in particular is benefiting from this, by being both a tourist and economic attraction.


As seen in Figure 3, the amount that travel and tourism contributed to GDP grew to £213.8 billion in 2017 and is expected to continue to grow. This is promising for small firms operating in this sector as there are many opportunities to make a profit.

Figure 3- Total Contribution of Travel and Tourism to GDP

WBC and the Hospitality Sector


Why is this a Good Opportunity for WBC?


WBC is a student run Junior Enterprise. This is key to note, as a large proportion of the consumers within the hospitality industry are aged 18-25. This means that WBC can offer valuable insight into a firm’s needs as the team is part of their target market. This gives Westminster Business Consultants a competitive edge over traditional consultancy firms.

WBC is also a very international organisation, not only in itself, but also with it’s connections to JADE. This is a strategic advantage WBC holds over the tourism aspect of hospitality. This is because there are a range of perspectives from 15 countries across Europe through other Junior Enterprises. This again differentiates WBC from competition, as our team is better suited to a client’s consultancy needs.


How can WBC Approach this Market?


Hospitality is a very broad sector in London and this may make it one of the easiest to infiltrate as a consultancy company. Because of the many hospitality companies in the city, and thanks to the nature of their demands, WBC can adopt a much more direct approach in attempting to enter this field. This is possible not only through cold calling, but also by directly visiting the businesses and having a talk with their General Manager or Manager on Duty.


One of the characteristics of hospitality is that even the General Managers or people at the highest positions within the company are often reachable at their workplace. This exponentially increases WBC’s chances to close a contract and establish a profitable relationship.

There is also the possibility for WBC to host networking events with local independent hotels, creating a base of contacts. This would allow WBC to also learn in greater depth the intricacies, processes and needs of each sector within the hospitality industry.


What can WBC Offer?


Brexit is coming, and consumers as well as employers are uncertain of the consequences it will bring. Hospitality, in particular, might be strongly affected by the regulation on immigrants and tourists. A huge part of the work force in hospitality are foreign and tourism is a main factor for the revenues of every business within this sector. It is therefore key that firms are able to properly target and reach consumers, and optimise efficiency during this period in order to make a profit.

This is a way for WBC to aid these companies by offering services such as legal advisory, marketing strategy and business development. This could, in turn, become one of the most profitable industries for WBC to work with. Examples of projects WBC could conduct in this sector include:

Market Research


A market research study into the hotels sector could help a small, local hotel be able to reduce costs by comparing methods used in larger hotel chains such as Intercontinental. Information on how more successful firms operate in the sector would be invaluable to a small or medium sized business.

Brand Strategy Growth and Innovation

As in every other sector, brand and innovation are key points when it comes to expanding a company. Companies that offer services of this kind often have every expensive services which are likely not in the budget of small companies. Therefore WBC, with its extremely competitive prices, can offer a high quality service to big companies looking to further expand their businesses as well as to small companies with limited budgets that are trying to attract more consumers.


Case Study: Sophie’s Steakhouse


Sophie’s Steakhouse is a company within the food and beverage industry, and has two bar-restaurants in London, one located in Chelsea and the other in Piccadilly. In this case study we will analyse the adversities the company is facing and the solution WBC could offer the steakhouse.


In the last 10 years Sophie’s has been a name of excellence in the food and beverage industry in London, famous for offering its customers very particular drinks and unique steaks coming from some of the most expert butchers in the UK. Since 2008, the company has had a main restaurant in Covent Garden. For nine years this worked perfectly and had extremely high revenue touching £60,000 during their busiest periods. This high turnover made Sophie’s a very happy and productive work environment. Such high revenues allowed the owners to pay and treat their employees well, and hire more staff to ensured high quality service to all consumers.


The Covent Garden restaurant had a single problem. It was starting to become too small for the amount of customers it was receiving. To solve that problem, one year ago, the owners decided to close the Covent Garden restaurant and to open a larger location in Piccadilly. They thought that doing so was the final step needed to allow their company to grow and further increase their profit.


Even though they moved to a more touristic and busy location, one year after the company opened the new location, they received very poor results. Their average revenue decreased as much as 50%, and their best day so far this year was £30,000. This decline has lead to many other problems like unhappy workers and continuous complaints from guests. It seems that as the owners continue to try to save more money, they are slowing decreasing staff salaries- making them lose the once high quality service they had merely a year ago. Clearly, the frustration the workers are feeling is impacting the service and therefore customers’ experiences.

What is strongly need in this situation is an external opinion, someone that can analyse the situation and be a connection between the owners and workers. By finding the solution in an objective way what the needs are and what steps need to be taken in order to start fixing these issues.


Due to their low budget the owners may not be keen to pay market experts to solve the situation as they are too expensive. WBC instead could offer a much more cost effective service and be as efficient as any other operator if not more. With our Business Development, Brand Strategy and Marketing services WBC could not only solve the problems of Sophie’s Steakhouse but hundreds of other hospitality companies in London that have similar problems.

Conclusion


As a final note, it is important to remember that hospitality is an industry that depends heavily on the disposable income of consumers. If an individual’s income is below a certain threshold, spending on this industry may be one of the first things cut off in order to save money.

To conclude, from the research conducted in this report it is clear to see that there is potential for both small businesses and WBC to work together in the hospitality industry.


Every sector within the industry is seeing growth. This is therefore the perfect time for WBC to help small businesses within each sector maximise efficiency, revenues and profits, while minimising costs. It can be understood that the most potential lies with small, independent hotels and restaurants, as these are the most accessible to WBC.


References

  1. Leonardo (2018) The explosive growth of Airbnb -An infographic for hoteliers.

[online] Available at:

https://www.vizlly.com/blog-airbnb-infographic/ [accessed 11DEC]

  1. Statista (2018) Travel, tourism and hospitality – Statistic & Facts

[online] Available at:

https://www.statista.com/markets/420/travel-tourism-hospitality/

[accessed 11DEC]

  1. Statista (2018) Hotel industry in the United Kingdom – Statistic & Facts

[online] Available at:

https://www.statista.com/topics/3146/hotel-industry-in-the-united-kingdom-uk/

[accessed 11DEC]

  1. Statista (2018) Restaurant industry in the United Kingdom – Statistic & Facts

[online] Available at:

https://www.statista.com/topics/3131/restaurant-industry-in-the-united-kingdom-uk/

[accessed 11DEC]

  1. Statista (2018) Theatre and the West End in the United Kingdom – Statistic & Facts

[online] Available at:

https://www.statista.com/topics/3689/theatre-and-the-west-end-in-the-united-kingdom-uk/ [accessed 11DEC]

  1. Statista (2018) Turnover food and beverage service in the United Kingdom – Statistic & Facts

[online] Available at:

https://www.statista.com/statistics/410468/turnover-food-beverage-service-united-kingdom/ [accessed 11DEC]

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