Streamlined hotel businesses can thrive in a high-inflation environment 

No one will be unsurprised to hear that the hospitality and tourism has been the sector hardest hit by inflation in the UK. It even beat carmakers and technology manufacturers to top the index of input prices – how much businesses pay for the materials required to create a product or offer a service – compiled by Lloyds Bank. 

This is no surprise. Hotels depend upon the parts of the economy that have been most affected by price increases, namely food, energy, and for those looking to build or expand, construction.

The sector has also been one of those worst affected by the post-Covid ‘Great Resignation’. Many businesses now need to increase wage offerings to remain competitive – putting further pressure on already strained budgets.  

Inevitably, deal volumes are beginning to reflect the difficulties facing the sector. Data from Knight Frank shows that despite a strong post-Covid recovery, the number of UK hotel deals in 2022 were down 30% on the five-year average, at £3bn.  

With the headwinds remaining strong, owners would do well to reevaluate their businesses and work out what the best plan of attack is.

Limited-service offerings might want to focus on convenience, functional amenities such as Wi-Fi, and – where possible – low prices. A hotel in a commuter hub looking to strip back to the bare essentials might want to consider digitising check-in.  

During the pandemic, many hotels understandably swapped out conference halls for co-working spaces while Zoom summits and hybrid working were all the rage, but these trends may not be here to stay. Many firms are in fact rediscovering the importance of office-based work and in-person business trips – and the crucial role that hotels play in facilitating the latter.

Hotels – much like lenders – should be putting people first. Providing excellent customer service, training staff well, providing a high-quality product and presenting a well-managed brand are all key to the successful functioning of businesses in both areas.

And in another parallel to the world of finance, hotels need to have deep knowledge of their specific sector to position themselves successfully. Many hotels are rooted in their local community and offer area-based knowledge that is unavailable elsewhere.

If hotels can remain focused on what makes them attractive to customers, there is no need to be fatalistic about the latest data. Even the need to pass on higher costs to consumers does not necessarily sound the death knell for the industry. Average daily rates in the capital have outgrown inflation by 45% since 1973.  

There are myriad ways wider economic headwinds can be exploited by savvy hoteliers. A relatively weak pound makes hotels more affordable for international visitors and the cost-of-living crisis means many people in the UK can no longer afford a holiday abroad, so will be looking for hotel accommodation for their staycations.  

While rising costs are cause for concern, hotels that remain focused will continue to thrive. Conversely, those that fail to address the challenges ahead will struggle to survive.