Some thoughts on Covid-19 and the hospitality sector

Figures released by the ONS show that GDP grew 2.1% in August 2020. Ninety per cent of this growth (or 1.9 percental points) arose from the services sector, and the remaining from production. While this growth falls below the one registered in July (and while monthly GDP is still very much below pre-lockdown levels), it is interesting to see the role of the hospitality sector in this small – but still important – recovery.

According to ONS’s numbers for August 2020, 66% of the growth in the services sector (i.e., 1.25 percental points of the overall growth in GDP) resulted from the hospitality sector, which includes both accommodation (e.g., hotels) and food services (e.g., restaurants and cafes). Or, in other words, accommodation and food services contributed almost 60% of the GDP growth recorded in the UK, for August 2020.

Source: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/august2020

The hospitality sector recorded impressive growth, and it is no longer at the bottom of the table, in terms of contribution to monthly GDP.

In my view, there are two factors to understanding this recovery in the hospitality sector.

First, consumer attitudes. An attitudinal survey carried out by ONS earlier in August showed that 95% of respondents were keen to get out of the home, after months of lockdown. Moreover, there was, generally, strong support for government measures to control the pandemic. Namely, of those surveyed by ONS, about two-thirds strongly supported the mandatory wearing of face coverings, while just over half supported targeted lockdown measures. Consequently, increasing numbers felt comfortable leaving their homes in order to socialise and to use leisure facilities.

Second, government’s initiatives. The Eat Out to Help Out scheme (whereby customers could get large discounts if they ate in – as opposed to taking food away for consumption at home) provided an incentive for people to – well – eat out. Not only did eating out in August 2020 increase significantly from July 2019, but bookings on August 31st 2020 were more than 200% higher than the equivalent day in 2019.  Moreover, the requirement to self-isolate for 2 weeks upon returning from a large – and ever changing – list of countries imposed a high cost (monetary and non-monetary) on holidays makers. Unable or unwilling to go abroad, because of these travel restrictions – only 9% of respondents in the ONS attitudinal survey said they were likely or very likely to go on holiday abroad. This represents significant less foreign holidays than the 64% of people who did so in 2019 – and, by contrast, a significant increase in holidaying in the UK, or the so-called staycations.

That is, the government’s measures pushed at the open door of people’s willingness to get out and decompress from many months of movement restrictions, and directed them to spend in eating out (vs. takeaways) and staycations (vs holidays abroad). Hence, the increase in this category.

Is this recovery likely to continue?

The most recent ONS attitudinal survey shows decreasing levels of socialisation and eating in restaurants and cafes, as well as increasing levels of anxiety and concern over the effects of COVID-19 on their life. Hence, I think that we are likely to see a contraction in contribution to GDP from this sector. But it’s not just the total amount that is changing.

Anecdotal evidence collected from my work supporting firms in the hospitality industry, during this crisis, also suggests a very interesting qualitative change in consumer behaviour.

On the one hand, hotels are seeing a rise in last minute bookings. This is not so much driven by great deals, but rather by a fear that the situation will change suddenly (e.g., local lockdowns) limiting consumers’ ability to travel or to benefit from local amenities if they do go elsewhere. This limits hotel managers’ ability to plan in advance (e.g., in terms of capacity management or work rotas) and requires them (and their staff) to be extremely flexible and dynamic. Though, customers may also have lower expectations and, thus, be easier to delight.

On the other hand, restaurants are seeing a decline in walk-ins, with more and more people calling ahead to check if the restaurant has capacity, and booking a table. While this could have some advantages for restaurants in terms of planning, it does represent a decline in revenues from impulse purchases. Moreover, for customers, it changes the nature of “eating out”, from something that is a spontaneous and rather informal event, to something that needs to be planned and – therefore – could become more of an experience.

Im summary, the Covid-19 crisis seems to be impacting the hospitality industry not just quantitatively but also qualitatively, because of changing consumer needs and behaviours. Having said that, I only have very limited evidence (plus, this isn’t even my main research area). So, I am curious to hear from others: What is your experience, either as a consumer or a manager in this industry?

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