Soaring operational costs pile pressure on hospitality capex, CGA finds

Rapid rises in operational costs are damaging hospitality’s capital expenditure programmes, according to a survey from CGA and Sona.

The survey of industry leaders found that nearly two thirds (63%) have increased their operational expenditure over the last 12 months, following inflationary pressures on the costs of labour, food and drink and other key inputs.

However, only a third (34%) have increased their capital expenditure while close to half (45%) have been forced to cut their capex, more than double the 20% who have reduced their operational expenditure.

Despite this, 25% of hospitality leaders believe they are currently able to increase both their operational and capital expenditure, but 14% have been forced to reduce both. This indicates the current fragility of the sector, with 9% of leaders reporting that they now have no cash reserves to draw on, while 53% have fewer than six months of reserves.

Just 22% of independents have increased their capital expenditure year-on-year, while 60% have been forced to cut it, 15 percentage points more than the sector average.

Some two thirds (65%) of leaders also said site refurbishments are a high or medium priority for investment, while 55% said the same about workforce management technology. Half (50%) identify both customer-facing technology and site acquisitions as high or medium priorities.

While three in five (61%) leaders said the economic environment is currently a barrier to their capital expenditure, only 27% cited consumer sentiment, an indication that Britain’s underlying demand for hospitality remains strong.

Karl Chessell, director – hospitality operators and food, EMEA at CGA by NIQ, said: “April’s increases in pay levels and National Insurance contributions have added yet more weight to the heavy cost burdens on hospitality businesses.

“All leaders are acutely aware of the importance of capex, especially in areas like technology, which can unlock efficiencies and extra revenue. Investment here feels a big stretch for some operators at the moment—especially smaller ones—but it’s going to be essential if businesses are to stay competitive and meet guests’ evolving needs.”

Paul Watson, VP of hospitality at Sona, added “As operational costs continue to climb, hospitality businesses are rightly reassessing how they allocate resources, but the findings from this survey underscore the critical need to invest in the right solutions for your business.”