A tech overhaul for hospitality
7 October 2020: Hospitality has been hit particularly hard for survival – new technology has been the only way to build back business.
As the UK locked down in response to the coronavirus pandemic, 80% of hospitality firms ceased trading, according to official figures.
Industry analysts Red Flag Alert revealed significant spikes in business debt across the sector. Insolvent debt among the hotel and accommodation sector more than doubled from £5.9m to £12.4m between March and June and travel and tourism businesses saw levels of bad debt increase from £5.1m to £9.1m during the same period.
Some government initiatives have given the industry much-needed support. 1.4m workers across the hospitality sector were furloughed under CJRS. The Eat Out to Help Out initiative paid for 64m discounted meals in the first three weeks of the initiative’s launch.
David Chaplin, managing director of the Chaplin Group, says the greatest support has been the now extended temporary 5% VAT reduction to help the hospitality sector. “It would really help to make the reduction permanent so we’re on a level playing field with other countries,” he explains. “We’re all competing for international guests. Hotels in Germany for example, have a VAT rate of just 8%.”
The Chaplin Group, which runs three luxury hotels across Norfolk and Cambridge, used lockdown as an opportunity to overhaul its back-office accounting systems, moving from onsite server-based ledger systems to cloud-based ones. Lockdown also made it easier to control costs once everything reopened.
“It feels psychologically easier to control costs from zero rather than starting at 100% and cutting back,” he explains. “Ordinarily, you might start from 100% and cut 10% or 15%, but if you have to scale back by 40%, you won’t have done nearly enough. Starting again from zero means it’s easier to scrutinise every decision as you go.”
Chaplin and his business has been able to take a proactive and positive approach to lockdown, but many have struggled having seen profits slashed. Now, analysts and industry insiders alike fear a second lockdown.
“Everyone in the industry has their fingers crossed that there are no further lockdowns,” says Garin Davies, CEO at Vine Hotel Group. “If it has to happen, you have to accept that, but our industry has been devastated by the lockdown and another would be catastrophic.”
The Vine Group employs a 600-strong workforce and manages 12 hotels across the UK, from city centre locations such as Sheffield and Southampton to staycation areas like Devon. The last six months have been incredibly challenging for the company, which will see 40-to-50% financial reduction across the whole business by the end of the financial year.
The group’s city centre hotels, usually reliant on seasonal events, festivals and theatre performances are currently operating at just 20% occupancy rates. The events and functions run by the hotels themselves have been severely limited, with many cancellations. The company usually runs around 400 weddings in a typical year, but in 2020 they are expecting to host just 12, with guest numbers severely limited.
Alongside the logistical and financial issues of scaling down overnight, there were also unexpected matters, such as keeping water systems running to prevent legionnaires disease. Even finding the front door key was a problem – as 24-hour hotels, there had never been any reason to lock it up.
“There were lots of physical and health challenges too; we wanted to keep some hotels open for key workers as service to the community,” Davies recalls. “We had to make sure staff were safe and everyone had to be really flexible and work different shifts and move to different locations at short notice. We had to do all this on reduced staff.”
The group is now complying with government guidelines around social distancing measures and PPE, as well as removing non-essential items from guest rooms such as telephones, bathrobes and ornaments. “Anything you’d ordinarily spend time putting into hotels to make them warm and welcoming now have to come out. We no longer do buffet breakfasts either. Basically, all of the things customers like about hotels have had to go.”
But Davies says the necessary changes has led to a surge in complaints from disappointed customers. “I’ve been amazed at some attitudes,” he admits. “But I understand them. The reason you go away, unless it’s a business trip, is to escape from reality and enjoy a luxury experience. But with these measures, it’s been extremely difficult getting the guest experience right.”
Chaplin’s own hotel group has also seen more complaints from safety measure-resistant disgruntled customers. Both hotel groups are in a stronger position than most, however. Davies says they’ve seen an increase in occupancy rates among their staycation hotels and have had a strong balance sheet to fall back on as well as a supportive board and bank.
The Chaplin Group has taken a data-centric approach to its planning around lockdown, which has gleaned some interesting information about the business and its place within the wider market. “Customers don’t associate cheapness with safety,” Chaplin points out. “We’ve invested in cutting-edge technology to keep guests safe and our average daily rate is higher than our competitors. But although our occupancy rates have fallen by more than our competitors, our revenue per available room (RevPAR) has not fallen like theirs has, which seems to vindicate our strategy.”
Early signs show that hospitality businesses are, on the whole, continuing to weather the storm, with many businesses pulling out all the stops to thrive despite an undeniably difficult landscape. Technology and innovation have played a key part in this: from order-at-table apps and contactless payments to some pubs and bars offering takeaways and food and alcohol hampers and hosting virtual online quizzes.
Chaplin in particular advocates technology as crucial to the sector’s recovery. It’s why his company has invested in thermal imaging cameras, which are less intrusive than ‘pistol-grip’ thermometers pointed at guests’ foreheads on arrival. Thermal imaging cameras will also easily pinpoint any individual who happens to have a high temperature.
As well as complying with PPE and social distancing guidance in their hotels, they also invested in a bespoke order-at-table solution to minimise contact between staff and guests. A QR code identifies the guest’s table and orders are placed and paid for via the platform.
“Cashless transactions are here to stay,” Chaplin says. “Data gleaned through these technology solutions has actually become very useful. We’ve been able to move the balance of our financial work away from recording and more towards analysis, so that has informed decisions in a way that perhaps finance didn’t before.”
For Alex Campbell, hotel and leisure finance specialist and partner at law firm FieldFisher, it demonstrates that the sector has done all it possibly can to innovate, despite not always having the funds to invest in it. While the sector has faced massive challenges this year, Campbell remains quietly confident that the sector will return to pre-COVID levels, although the bounce-back is likely to be slow.
On-going social distancing rules are likely to have a natural cooling effect on restaurants, hotels and pubs while the opening and closing of air bridges has done little for consumer confidence.
Yet, there are definite upsides, at least on a national level. “We’ve seen a boom in local tourism and that is set to continue due to uncertainty around international travel,” says Campbell. “There’s been a massive rise in staycation activity. Areas like the West County and other popular tourist UK areas have seen a real surge in holiday bookings.”
For UK-based hotels, restaurants and bars at least, this is good news, but it does leave a question mark over the future of international travel and tourism. The cruise ship industry too, could have a rocky future, unless they adapt and innovate to improve consumer confidence.
As Campbell points out, customers visit where they feel safe. The hospitality businesses who are leading the way in terms of innovation and compliance while responding to changing public behaviour are the ones who will see returning customers.
“The landscape has changed so much,” says Campbell. “Businesses in the sector need to embrace change. Otherwise, they are unlikely to survive.”