RSM released their Leisure and hospitality industry outlook report last week as part of their wider Consumer Market Outlook series and there is some good news ahead for hospitality, particularly pubs.
The outlook for demand growth throughout 2024 is expected to recover in the second half of the year when inflation is forecast to fall to the Bank of England’s target rate of 2%. Interest rates are also to fall in the second half, reaching 3.9% by year end. Coupled with a rise in real wages and with tax cut announcements looking likely in March’s Spring Budget, it should all mean that consumers feel better off overall by the time we reach Christmas.
All of these economic factors provide the backdrop to a mixed bag for hospitality with pubs winning out overall. The value-driven offering the pubs provide mean that consumers are planning to increase their frequency of visits to these venues by 11% in 2024, and much of this will be driven by the re-emergence of the importance of Gen Z – one of the groups most affected by the living costs crisis
This group plan to increase their visits to pubs by 7% this year but RSM point out that, with 27% of Gen Z aiming to cut their eating and drinking expenses overall, they are looking for special deals and discounts, making it a key opportunity for pubs to leverage.
But, while pubs will benefit from visits from Gen Z and student consumers, “this same demographic plan to reduce visits to bars this year by 31% and to nightclubs by 4%.
“Where pubs represent value to cash-strapped youngsters, bars and nightclubs typically offer a more premium experience with a higher cost attached, which is proving unattractive in the current economic climate.”
It all means that the night-time industry is expected to continue to struggle. Like-for-like sales for late night bars were down on average -5.5% in 2023, and a recent RSM survey showed that consumers intend to visit late night bars 15% less in 2024 with visits to nightclubs flatlining.
However, there could be an opportunity amongst older consumers for this sector. Gen X are saying they want to increase their visits to late night bars by 13% this year and Millennials plan to go clubbing 6% more than in 2023. “With new concepts coming to the market like Annie Macs ‘Before Midnight’, a 7pm – 12am club night for consumers that ‘need more sleep’, 2024 might be the year we see a shift in nightlife concepts targeted at older consumers who still want to party.”
For restaurants, demand will remain consistent to last year, benefitting from high earning households (over £80K per year) and affluent families – those aged between 25 and 54, who have children and have a household income of over £60K per year. This group will visit restaurants more than twice as regularly as the average consumer (more than twice a month) and both groups intend to increase the frequency of visits this year.
But with 1.6 million consumers due to renew their mortgages this year, worry around high interest rates will affect the spending intentions of many consumers, and affluent families are expected to be one of the most impacted. 93% say that rising interest rates will affect their discretionary purchases in 2024.
One strategy that RSM highlight for this key group is to offer loyalty programmes. Even more than the Gen Z student market, 41% of affluent families said they would seek out special offers and discounts. These families are more interested in finding discounts than the average consumer (26%) and suggests loyalty programmes could help to increase customer loyalty and engagement.
“Pizza Express is one example of a restaurant taking action to appeal to families. Throughout January, club members will get 50% off dine-in pizzas after research conducted by the business revealed 82% of UK adults said that socialising with friends and family would help them cope with the ‘January blues’. By offering value through their loyalty scheme, Pizza Express is playing it smart to fill covers during the slowest month of trade for the sector.”
All-in-all, while the cost of living crisis will define the first half of the year, RSM say that assuming “a more favourable summer this year following 2023’s washout, pubs should thrive as patrons enjoy beer gardens and major sporting events such as the Euros.
“Added to this, the pub industry, like the rest of hospitality, will benefit from a boost to consumer confidence at the back end of the year as inflation normalises and interest rates begin to fall. Pubs are poised to wrap up 2024 on a high note, marking a resilient year ahead for the sector.”