After a dismal year of tax rises and crippling energy bills, pubs, bars, and restaurants are starting the New Year with their glasses half empty, Startups research has found.
In our annual survey of business leaders, we asked 531 SMEs towards the end of 2024 how optimistic they were about their business growth prospects in the next 12 months. 70% of hospitality firms said they were optimistic about growth about 2025, the lowest of any sector.
This shows a dip in confidence of 10 percentage points from the end of 2023, when 80% of hospitality companies told us they were somewhat or highly optimistic about the future.
Firms have been dealing with a cocktail of challenges since COVID-19. Five years on from the pandemic, our research also finds that many have yet to fully recover financially. And, with yet more obstacles on the horizon this year, their expectations are unlikely to change.
Why is hospitality struggling?
The increasingly negative sentiments of hospitality business owners, as seen in our survey results, follows years of tough trading conditions for the industry that continued into 2024.
On the world’s least-desirable menu for SMEs last year was a record-breaking rise in the UK minimum wage, despite firms struggling to raise pay. Employers in the traditionally low-wage sector have struggled to employ staff for years, resulting in record labour shortages today.
Employing staff became even more difficult in October, when the Autumn Budget triggered a rise in employer National Insurance Contributions (NICs).
At the same time, new tipping laws came into effect that mean a fairer wage for workers, but have also decimated already razor-thin profit margins.
Lots of firms have been forced to increase their prices or add new charges to bills in response to the move, which has diminished consumer appetite for eating and dining out at a time when many are already limiting their spending.
The results have been catastrophic. 3,000 bars and restaurants have closed or gone into administration in London alone since 2019, including the famous Brixton Dogstar.
What’s the answer?
Other industries have been quick to embrace new technologies, such as AI, to automate tasks and keep staffing costs down.
Pub, bar, and restaurant owners appear aware of the AI boom within the wider business world. 44% of hospitality leaders told us they felt moderate to high pressure to adopt AI.
But in the traditional and customer-centric hospitality sector, the data suggests that pub, bar, and restaurant owners have reservations about how much AI will impact their business.
Most organisations are sceptical about the arrival of robot waiters. In fact, 51% of SMEs do not think that AI technology will disrupt the hospitality industry in the next three years.
Food fight due in 2025
2025 is unlikely to turn hospitality owners’ frowns upside down. Come April, the raft of tax rises announced in the last October Budget will come into effect, including another rise in the living wage and the planned rise to employer NICs.
In our survey, 16% of firms told us they did not plan to raise wages in 2025, suggesting that many are planning conservative cash flow forecasts in response to the looming wage rises.
The silver lining that many were clinging to was the planned changes to business rates. The government has previously pledged to permanently cut business rates from 2026.
The situation must get worse before it gets better, it seems. In October’s Autumn Budget, the 75% business rates discount for retail, hospitality, and leisure SMEs was actually lowered to 40%, raising the rates bill for a significant proportion of brick-and-mortar small businesses.
