The hospitality and recreation sector is between recovery and fear

The Corona challenges appear to have been pushed back and the recovery in the sector is clearly visible. Revenue is recovering quickly, but gradually there is more uncertainty about the near future. What will inflation do? How do you deal with staff shortages? In this update, Rabobank discusses the recovery of the sector and the reservations to this recovery.

Good recovery is seen, but for how long?

We are seeing a sharp increase in the number of digital transactions, both debit and online, in all leisure sectors. Whether it is to spend in the daytime recreation (hobby and leisure), eating or drinking or on vacation. In all cases, transaction revenues have been increasing since February this year compared to 2019. This shows an extremely strong recovery even with all the current challenges for the workforce (see Figure 1).

Holiday consumption has definitely risen sharply, with the number of digital transactions in April 2022 being more than twice as high as in the same period in 2019. The months of February, March and May showed increases of over 80%. This indicates a strong recovery in both domestic and foreign holiday spending.

Expenditure on food and drink outside the home is also still increasing compared to 2019. In March, April and May, the number of transactions was almost 40% higher compared to the same period in 2019. That the sector is recovering so quickly from the corona crisis has to do with ‘catch-up consumption’ (we could not, so now it is going well or more often), price increases that have been implemented, but also tourism that is recovering faster than expected.

Despite this strong recovery, the challenges for the sector are enormous. Food prices are skyrocketing and so are energy bills. In addition, we expect the decline in purchasing power to affect revenue in the sector around the second half of 2022, slowing the recovery. This may mean that some companies will not yet fully recover from the impact of the corona pandemic.

Tourism is recovering: Germans and Belgians in particular are returning

Expectations for the recovery of foreign tourism for 2022 were subdued. Now that the corona measures have been lifted, incoming tourism seems to be getting stronger. This recovery is getting better and better as the corona measures are further behind us and consumers have the confidence to travel again. According to Statistics Netherlands, the number of overnight stays for foreign tourists in January was less than 25% of the level in 2019. In April, this has now risen to over 90% of the level in 2019 (see Figure 2).

This recovery of foreign tourism is largely due to the German and Belgian guest, who are increasingly finding their way to the Netherlands. For example, the number of overnight stays made by the German guest in April was again above the level in 2019. The Belgian guest remained a little more cautious at 83.2%. In particular, the guest from the UK (67.9% compared to 2019) and the guest from the US (76.5% compared to 2019) still stayed away. Although we are certainly not at the 2019 level yet, the recovery is faster than expected and it gives hope for this summer period.

Hotels are experiencing good improvement, but not in all regions

The hotel market has been hit hard by the corona crisis. Following the abolition of the measures at the end of January, we see a strong recovery in the Dutch hotel market. According to the analysis agency STR Global, the market in the Netherlands has recovered the fastest in recent months compared to other countries in Europe. During the first 4 months of 2022, the market is still showing a marked dent: 25% fewer overnight stays. But when we compare it per month, we see that it gets better per month. The number of overnight stays was only 5% lower in April. There is a clear difference between the different regions when it comes to the recovery of the hotel market (see Figure 3).

In the provinces of Drenthe and Flevoland, the number of overnight stays has been fully restored in the first 4 months of 2022. On the other hand, the hotel market in North Holland is still far from the old one, and the number of overnight stays was only 62% in 2019. Due to Amsterdam Metropolitan Area (MRA) was the market in North Holland is largely dependent on international tourism and the number of air movements at Schiphol. Up to and including April, the number of overnight stays in Amsterdam Municipality was just under 70% of 2019. The number of overnight stays in Haarlemmermeer (Schiphol) was 53% of 2019. This simply shows how dependent the region is on foreign tourism and aviation movements.

Also in Amsterdam, we are seeing a stronger monthly recovery in the number of overnight stays. In April, this was e.g. only 10% less than in 2019, and room prices have also returned to old levels.

The fear of the second half?

As mentioned earlier, we are currently seeing a strong recovery in spending in the hospitality and recreation sector. Although there are also dark clouds on the horizon, with uncertainty about the near future. For a few months now, we have seen consumer confidence at a record low level, prices rising sharply and there is a large shortage of staff in the sector. The biggest challenge is also a corona debt, a deferred tax, of about 1.4 billion euros.

High inflation is currently pushing margins. As a result, consumer prices in the catering industry will increase by about 6%. However, costs are currently rising by more than 10% due to a combination of rising costs for energy, staff and purchase prices. These high costs must therefore be mitigated. This can be done on the one hand through innovation such as robotics and QR codes, but on the other hand also by adjusting the menu and preventing waste.

The other big challenge is that from October, the debt to the tax authorities must be repaid. This in combination with an expected margin pressure. This challenge will vary from company to company. For example, previous studies from the network organization SRA show that a large proportion of companies came through the corona period without too much debt. At the same time, however, we also see from recent CBS surveys that a large number of companies are struggling with problem debt.

All in all, the good recovery combined with the challenges of margin, debt and staffing issues gives a vague picture at the moment.

Higher margin due to less waste

During the recent period, 12 restaurants in Central Brabant have participated in the Food Waste Challenge. Over a period of 8 weeks, they took up the fight against food waste. In the end, these restaurants managed to reduce their food waste by more than 54% during this period. If they continue in this way, their goal of achieving 50% less waste by 2030 will have been achieved. The savings of 54% not only save kilograms of food, but also reduce CO2 emissions by 40,560 kilos per year. Reducing food waste also provides a better margin.

The participating restaurants resulted in a total saving of € 175,000 per year, which was achieved without major investment. Now that prices are rising and not all prices can be passed on to the guest, saving on waste is a strategically good choice. This makes it possible to maintain or even improve returns without raising prices.

Restaurants in Central Brabant have taken various measures to prevent food waste. For example, the menus have been changed with a smaller selection of dishes, staff have been actively directed to prevent spills and leftovers have been used for alternatives. These efforts show that there are rich opportunities in the sector with limited efforts to make it more sustainable and thus also improve profitability. This makes fighting food waste a good way to fight inflation.

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