(Article penned for one of Scotland's newspapers. Edited version publishes 27th December)
Bank of England Governor Mark
Carney has stated this week that Britain is in the midst of ‘the first lost
decade since the 1860’s – and on a 10-year moving average basis, real wage
growth has collapsed dramatically over the last decade, at a rate and
consistency not seen since the 1860s. Wages aren’t growing because the overall
economy itself is struggling to expand.
Writing this article on December 7th,
we’ve seen on our main Balbirnie Twitter feed today, that our local MP Peter
Grant is highlighting the ongoing Supreme Court Brexit case, saying ‘an Ardent
Brexiter tells committee, unprompted, that the pound has plummeted by 20% since
EU referendum’.
So what does all of this mean for
Scotland’s Hospitality sector?
At a base level, alcohol pricing is
going up by at least 10%. Drinks suppliers haven’t applied that sudden increase
yet, as they have recognised our sector has already sold Christmas on
pre-agreed pricing. The rise will begin in January.
Food pricing is already
accelerating. Broadly speaking we have the rise envisaged in a band between 15%
– 18%. We’re rather stunned to say that the vegetable sector appears to be at
25%. Fish and butchery are doing best to hold, but categorically pricing is
going up in January. As an extremity, one supplier has quoted a 40% increase in
the cost of traditional Smoked Salmon, thank goodness at Balbirnie we have the
ability to make our own in-house!
In combined summary these are not
costs which Hospitality can pass onwards to customers, in what is as always a
highly competitive marketplace.
Additionally, as we see these
phased increases, they will also apply in supermarkets. So that means the
disposable cash in the customer pocket, has already reduced.
According to latest research from accountancy firm
Moore Stephens, a total of 5,570 restaurant companies have at least a 30%
chance of going insolvent within the next three years.
The sharp fall in the pound since the Brexit vote
has obviously added to the pressure on the sector by increasing the cost of
imports for restaurants. The UK imports 48% of its food, and many hotels and restaurants
rely heavily on imported food and wine.
Furthermore, UK Hospitality and Tourism sectors are
still contending with prevailing VAT at a rate of 20%, despite massive UK-wide
cross-party MP support for a realignment to the same ballparks as other EU
countries. This ‘rather frustrating situation’ has sadly now been ongoing for
many years.
In 2015, Chancellor George Osborne enforced a
phased 5 year 38.5% rise in National Minimum Wage rates, actioned without even
consulting anyone within the UK Hospitality and Tourism Sectors. This is
already in very firm progress, accelerating towards 2020, and it is already
causing challenges across the entire span of Hospitality, as that 38.5% rise
also certainly can’t be passed onwards to customers.
It is crystal clear that what now already exists,
and what lies ahead for Scotland’s hospitality sector, is going to be a test of
character. In order to survive and thrive, hoteliers and restaurateurs are
going to have to examine every single component of every single aspect of what
we do.
It is pertinent that us Scots have a well-deserved
worldwide reputation for our canny inventiveness. As we approach the end of
VisitScotland’s 2016 Year of Innovation, Architecture and Design, we can
certainly look ahead to 2017, with more continuity in relation to Innovation.
As always, #ScotSpirit is required in an abundance.
Kindest regards from the geographic heart of our amazing Kingdom of Fife, the happiest place to live in Scotland 2016.
Nicholas Russell / MD and owner Balbirnie House
Former #SHA Hotelier of the Year
