Can London’s hospitality sector recover?

City Spotlight | South East
Piccadilly Circus

The coronavirus pandemic has devastated many sectors across the world – and none more so than the leisure, tourism and hospitality industries – all of which rely on footfall and in-person experiences. With the COVID-19-enforced lockdown pushing many businesses within this sector to the brink of existence, many have – or are about to – reach a point of no return.

However, with lockdown restrictions now relaxed, government loans available and the general public now returning to some semblance of normality – there is cause for optimism. Business Leader brought together some leading experts to discuss if the capital can recover.

Panel

  • Dr James Morgan, Principal Lecturer in Tourism and Events at the University of Westminster
  • Clare Coghill, London Councils’ Executive member for Business, Europe and Good Growth
  • Allen Simpson, Director of Strategy and Corporate Affairs, London & Partners
  • Alexandre Santamaria, Founder of Aware Hospitality
  • Alberto Gutiérrez Pascual, founder and CEO of Civitatis

What has been the impact of COVID-19 on London’s leisure and tourism sector?

Coghill: “Lockdown caused an immediate, and in some cases almost total, end to the turnover of the leisure and tourism sectors. Not only this, but London’s complex and specialised supply chain took a sudden hit. In my own borough of Waltham Forest, there is a laundry firm focused on the hotel trade, which saw their business disappear entirely. This was seen across the breadth of London, from event lighting specialists to catering firms. Often, as these businesses were not registered as hospitality businesses, they were not eligible to access grants or business rates relief, causing further devastation to their finances.”

Morgan: “Walking through Covent Garden recently was a whole new experience. Many of the restaurants and all the theatres are shuttered. Hardly anyone is on the streets. This is one of the major impacts from COVID-19 on London’s domestic and international tourism and leisure sectors. With all tourism and leisure venues being closed in March, many businesses have had to survive with next to no income. Whilst government support packages have been forthcoming, for the tourism and leisure sectors, which include consumer and business events and hospitality, it will only be in October when the full picture of the impact can be judged, due to the furlough scheme coming to an end on 31 October.

“Covent Garden’s theatres need to have capacities of at least 80% to be profitable, this is much the same for music venues. “They have all lost out. Hotels have suffered losses due to the reduced number of international tourism arrivals and less domestic tourism into London. Whilst domestic tourism has mainly supported London hospitality businesses and with the re-opening of cinemas and museums in July, tourism and leisure choices for visitors have increased.

“However, the main tourism and leisure superstructure that includes theatre, live music venues, consumer and business event venues that rely of tickets sales, venue hire, and their bar and hospitality sales have had to try and survive with their doors closed.”

Simpson: “Like every other destination in the world, the pandemic has had a major impact on London’s economy as a whole, and the leisure and tourism sectors have been particularly hard hit.

“Currently, Visit Britain anticipates a 79% decline in international visitor spend and a 49% decline in domestic visitor spend. When you consider the fact that tourism is worth £18.7bn to the London economy and that one in five Londoners works in the hospitality, retail, events and tourism sectors, it’s obvious that COVID-19 is having a huge impact on London’s leisure industry.”

Santamaria: “We are in danger of a real loss in skills, similar to the one we saw during the 2007/2008 financial crisis. Restaurants and bars are having to watch every hour of payroll, cancel staff trainings, combine positions, give additional responsibility to their staff, effectively resulting in over promoting.

“We are having to accept lowered standards due to reduced staff. Realistically, positions such as hosts, barback and junior managers are key positions, but a restaurant can operate without them for a short while. The guest experience will be affected, waiting times increase and staff stress level may increase but the business will still run. While service standards are getting lower, menus are getting shorter in order to reduce kitchen headcounts. The overall skill level and quality base line is dropping.”

Can the sector recover? If so, how?

Coghill: “I am always amazed by the enterprising spirit of London’s business owners.xWe’ve seen restaurant catering firms reinvent themselves to provide home deliveries, as well as tour guides giving online virtual tours in New York time for American Beatles fans.

“But London, especially central London, faces a unique set of challenges. Tourists do not typically drive into central London and there is an understandable reluctance to return to public transport. International tourism has largely disappeared and even the most optimistic predictions do not see any scale of return much before summer 2021.

In addition, with the success of working from home for many firms, there is no rush back into the office, which means much less lunchtime and evening spending by office workers.”

Morgan: “In the absence of a vaccine and taking the example of the Eat Out to Help Out scheme, we are starting to see the emergence of a similar scheme being proposed. Meet Out to Help Out has been launched by the business events industry and similar schemes relating to theatre, live music and other leisure pursuits could be developed.

“Another area that is important is research. Notably, the UK government has opted out of an European Union (EU) initiative to pool research in this area. This is a grave mistake, where government has ignored the power of collective intelligence in extraordinary times.

“Whilst the government has put the social distancing pilots on hold, the data from the research undertaken and the results of the pilot schemes need to be collated at pace, and alongside European research to inform government policy that balances a recovery process in tourism and leisure provision against the risks of opening up the economy, whilst the threat of COVID-19 exists.”

Pascual: “Of course, the sector can recover, and that will happen when the public regains the confidence to travel regularly. For that to happen a coronavirus vaccine seems essential, and luckily the latest news is that this may become a reality towards the end of this year.

“Once a large part of the population has been vaccinated, I think people will continue to travel just as before: the same routes, destinations and activities. At Civitatis, we don’t for a second think that the British Museum, London Eye, or Tower of London will remain empty once the situation has normalised.”

What can local and national government do to help?

Coghill: “There are a range of examples across London where a proactive approach to road closures has allowed restaurants and cafes to rapidly increase outdoor seating and their number of covers.  Boroughs will continue to work on initiatives like this to help businesses. 

“Eat Out to Help was a great success and we would urge national government to look at running something similar again, working with the industry to find the right format that will have the biggest impact. I know similar initiatives are being promoted by theatres and other venues and this needs serious consideration.

“Boroughs are urging the government to retain elements of the job support scheme to support those sectors hardest hit and continue focused business rates holidays beyond March 2021.”

Morgan: “Some action has been taken already. For example, the government launched a £1.57bn fund to support the arts, cultural and heritage organisations, but it is questionable if cash-strapped small venues, independent support businesses and the self-employed can withstand the negative financial impacts.

“However, some London councils have been supporting culture and leisure providers through top-up payments for furloughed staff, deferring management and other fees, providing rate relief and extending timescales for the repayment of loans. But more is needed to support the tourism and leisure superstructure.

“This is in terms of targeting specific support packages to maintain London’s tourism and leisure facilities. For example, over 100 small independent theatres in London are asking government for just £9m to stay afloat.

“Small businesses like this find it hard to attract investment and often don’t have the management expertise and capability to deal with the extraordinary. Many of these businesses and supporting self-employed workers were not covered by the government schemes either. The impact of little support for these small tourist and leisure organisations means a reduction in the capacity of London’s modern and traditional tourism and leisure superstructure built up over centuries will be lost to an extent.

“This means a reduction in choice for both domestic and international visitors. There is a strong possibility that many of these centres of innovation and creativity will cease to exist.”

What subsectors of leisure and tourism have been the worst affected?

Morgan: “Theatre, live music performance, consumer and business events have been the worst affected. The predicted start of the businesses in these sectors, pencilled in for October 1, has been thwarted by the September surge in COVID-19 cases. For example, indoor consumer and business events that were postponed earlier in the year, or events that were planned to run from the beginning of October, have been put on hold. Dozens of small independent off-West End performance spaces that planned to re-open in October, are now under imminent threat of permanent closure.

“But due to the success of Eat Out to Help Out, the hospitality industry in London, especially in the suburbs, has seen an uptick in economic prospects. However, businesses in tourist hotspots such as Covent Garden are suffering due to their operations being part of leisure and tourism clusters that feed off each other and they all rely on both international and domestic tourism spend.

“A prime example is theatre-goers going to restaurants in the area before a show.”

Simpson: “For the hospitality and retail sectors, things have been more difficult. The balance between keeping visitors safe and making sure we are open for business is a delicate one. For example, quarantine rules are having a big impact on hotels, with occupancy down 75% from July last year to less than a quarter in the same month this year.

“On the retail front, flexible working means a lot of office workers are still working from home, and this is having big consequences for retailers, particularly in central London. Statistics from last August showed that overall footfall was only 28% of pre-pandemic level.

“Culture is another sector that has really suffered and is having to make big changes to adapt. As well as ‘standard’ safety measures, such as wearing masks and social distancing, museums are introducing mandatory pre-bookings with timed tickets, as well as capping visitor numbers, much like other historical attractions such as the Tower of London. This means that while much of the cultural sector has been able to reopen, it is under real financial strain.”

Pascual: “Up until now one of the sub-sectors which has been worst hit by the current situation has been nightlife, for the theoretical difficulties in implementing the same security measures compared to other activities. In general, any kind of activity that implicates a certain capacity, and which now has to be reduced, will be far more affected than those activities taking place in the open air, such as a free tour of London.”

Santamaria: “High end of course, for several reasons. First of all, because of financial uncertainty which leads to people not spending as much. Also, the loss of a key segment that is the international business clientele entertaining on business lunches. Then the lack of adaptability high end restaurants often have. High end operators are often more emotionally involved and find it hard to compromise on the variety of their offer, quality of service and other aspects.”

With lockdown restrictions lifted – what does the future hold for the sector in London?

Morgan: “The structural integrity of tourism and leisure provision is under threat, even if lockdown is lifted and a vaccine is found. From a supply-side point of view, businesses have closed, under investment is rife and many of the skilled workers in the tourism and leisure sector are unemployed. From the demand-side, the anticipated new wave of job losses as a result of the furlough scheme coming to an end questions the availability of disposable income that can be spent by domestic tourists.

“This may be compounded by the fact that the autumn tourism season sees fewer international arrivals in any case, so London’s tourism and leisure sectors need to brace for further job losses. This will lead to under use of venues, hotels and supporting businesses, leading to more business closures and a general tightening of belts by both domestic and international consumers, impacting London’s tourism and leisure economy.”

Simpson: “London has so much to offer to visitors from the UK and from all over the world, and that appeal isn’t going anywhere. Visitors will be back. But there is no denying that the capital’s tourism sector, and indeed global tourism, is going through a crisis.

“While this is a terrible situation that no one could have anticipated, we need to use this time to reappraise what we want tourism to mean for our city. We need to prepare for the return of visitors, while ensuring we rebuild in a more sustainable way, spreading the benefit of tourism to the whole city, and to all Londoners, while rising to global challenges such as climate change.”

Santamaria: “I would personally invest in two models in UK. Food delivery brands and experiential dining/party dining. The rationale behind that is that people are staying at home more than ever and the delivery offer has never been so great in terms of variety and quality. If they are not going to stay at home, they will want more than just food and we should focus on creating multi-dimensional concepts that encompass music and party atmosphere. This is an exciting opportunity for creativity and could be chance for the more agile business to spread their wings.”

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