The hospitality and leisure sector is highly diverse and fragmented, consisting of organisations in gaming, attractions, golf, hotels, spa resorts, restaurants, pubs and clubs, health and fitness and holiday parks to name but a few.
Over the last few years, growth in consumer spending has strengthened, providing a boost for the hospitality and leisure sector. In parallel to this growth, there has been a sharp increase in both utility and workforce costs, with increases in the minimum wage that have impacted profit margins with this growth in revenue.
The UK may well see its opt-out from the European Union working time directive phased out over the next few years, which could have a negative impact on the sector. Plans to overhaul immigration rules to attract more highly skilled workers from abroad may also add to an increasing wage bill.
Corporation tax changes will have differing affects on the industry, with hoteliers experiencing reductions in building allowances until 2011 when they will then be removed altogether. Smaller hospitality and leisure businesses face increases in the small business corporate tax rates.
The hospitality and leisure sector is extremely sensitive to consumer demand and as such is extremely susceptible to environmental, economic and market trends. Interest rate rises in 2007 are expected to dampen consumer spending growth in 2008, and expected further strong growth in the euro zone over a more subdued growth in the US suggests that the number of overseas visitors is likely to slow, further impacting the sector.
With the implementation of the smoking ban in public areas, lack of outdoor space with current pub properties and restrictions on drink promotions, the outlook for growth in hospitality and leisure industries that are 'wet-led' is looking more subdued. As a result, this may lead to a period of consolidation in this sector, although restaurants may well improve due to the smoking ban.
Growth in direct internet booking is putting further pressure on firms in the travel and hospitality sector, with travellers searching for better deals and booking later, resulting in shorter cash flow prediction analysis. Innovative firms, such as larger hotel operators, are increasing their use of in-house Internet booking systems and customer loyalty systems to help maximise revenue.
Government focus on tackling health issues will ultimately benefit the health and fitness sector. However, it is important that services offered are correctly aligned to demographic trends, older population requirements, spending capability and busy lifestyles. It is therefore important that the correct financial and operational metric information is available to maximise revenues and attract the correct customers.
Uncertainty around the government plans and revisions to the Gambling Act, allied to increased duty levied on casinos, will act as a deterrent to potential investors, which will dampen growth potential in this sector. This will be further exaggerated by the smoking ban referred to above.
Whilst it is clear that the sector is and will continue to experience challenging times, there will be increased investment in the industry due to the successful Olympic 2012 bid, albeit predominately focused within the London region.
The winners in the highly diverse and fragmented hospitality industry will be those organisations that turn these challenges into opportunities, delivering against profit and growth targets, managing employee skills effectively and ensuring they have the right information available to them to increase the performance of their operations.