2022 Sector Outlook

Will 2022 see the H&L revival continue?

View our 2023 sector outlook for hospitality and leisure

Hospitality and leisure businesses have once again demonstrated their resilience, determination and adaptability to bounce back from the worst of the pandemic in 2021 and are ready to face new challenges. Mike Saul takes a view on the industry’s prospects in 2022.

While 2021 wasn’t quite as devastating for hospitality and leisure as the first year of the pandemic, it was definitely a year of two distinct halves.

Looking back to the first half of last year, most H&L businesses were either barely operating or temporarily shut down thanks to the Covid restrictions. But freed to respond to consumers’ pent-up demand for leisure activities from 19 July onwards, they really made the most of it.

The consumer leisure market bounced back fairly quickly as people returned to pubs, hotels, cinema and theatres, although large scale events and festivals have been slower to recover. Meanwhile, the corporate market has seen only a partial rebound.

Domestic tourism has, of course, prospered as staycations again proved popular and we’ve also seen a welcome, albeit limited return of international outbound and to a lesser extent inbound, tourism.

Learning the lessons of their fight for survival in 2020, many H&L businesses planned ahead, reassessed their target markets, reviewed their cost-structures and rapidly adjusted their operating models to meet changing customer expectations where necessary.

Looking forward

Despite the current uncertainty over the omicron variant and the threat of renewed restrictions, the sector now looks leaner, sharper and more agile as the market shows promising signs of recovery and growth.

I think we’ll see plenty of merger and acquisition activity and interest from private equity investors in the year ahead, in the restaurant, pub and holiday park sectors in particular, where many operators have adapted creatively to meet evolving consumer demand. This is creating strong growth opportunities for well-run businesses.

Of course, this must be balanced by a degree of caution, given the ongoing Covid-19 situation and, bearing this in mind, I don’t anticipate the wider H&L market to return to something resembling normality until at least 2023.

Travel and tourism

We expect the staycation market to remain strong this year, with the continued uncertainty around overseas holidays.

Domestic hotel and holiday rental rates are holding up well as a result of strong demand, with many consumers being more discerning and opting for higher quality experiences and accommodation.

In contrast, the international holiday market is significantly below pre-pandemic levels, despite some uptick in summer 2022 bookings. Outbound international flights are down 85%, international rail operators using the Channel Tunnel have seen a significant fall in demand, and the international cruise sector which saw 2.2 million passengers travel through UK ports in 2019, has been unable to restart. It seems unlikely we’ll see stability in the international leisure and corporate travel market much before 2024.

Knowing your customers

The advent of Covid-19 has underlined the importance to H&L businesses of understanding what their customers want.

Effective use of customer data and analytics customer data has been crucial to achieving that depth of understanding and we expect this data trend to accelerate in the year ahead as companies revisit their strategies and seek to optimise their marketing to win and retain customers. Significantly, 43% of larger operators with more than 500 employees are investing in data capture and personalised marketing1 – something that our colleagues at Barclaycard can support through tailored and precise insights on consumer spending patterns and preferences.

The growing importance of environment, social and governance (ESG) issues will also be felt more strongly in 2022, we believe, with more and more customers expecting H&L businesses to be actively addressing them, whether through eliminating use of plastics, ethical sourcing, recycling strategies or reducing their carbon footprints.

Businesses without credible ESG policies risk losing out to rivals that do, as customers increasingly vote with their feet.

Staff shortages

Staff shortages will continue to be one of the most significant challenges facing H&L businesses this year, with an estimated 170,000 shortfalls in the workforce placing added operational pressures on the sector and stoking wage inflation.

The shortfall is being driven by an inability to access overseas labour while many experienced foreign nationals formerly based in the UK have returned home, and it is hard to recruit workers from the UK population, perhaps due to a lack of knowledge about the industry.

Although the sector is trying to up its game to train and retain the right talent at more senior levels, as with many sectors of the economy, the general shortage of staff is a tough nut to crack, given the absence of EU workers and the difficulties of attracting people from the domestic workforce and general perceptions about working in the industry.

To meet its staffing needs in 2022, the industry must make a concerted effort to educate people about the potential long-term career opportunities and financial benefits it can offer.

Cautiously optimistic

H&L remains as crucial to the UK economy in 2022 as ever, as our fourth largest industry and an employer of more than three million people directly, and countless more through the supply chain.

Although new Covid restrictions, staff shortages and wage inflation may still be putting a brake on its full potential, this is a resilient and resourceful industry and, with a fair wind behind it, I‘m cautiously optimistic this year could mark the start of better times.

1Barclays Corporate (2021): Leisure rediscovered: New opportunities for post-lockdown hospitality.

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