This blog looks at how the hospitality sector has been affected by the pandemic and the recent increases in the cost of living.
About the data
When we refer to “hospitality” in this blog, we mean accommodation and food services as defined by the Standard Industry Classification code. This covers hospitality activities from hotels and campsites to restaurants and nightclubs.
We have looked at several sources of data in this blog. The main sources used for economic output and employment are:
- The regional gross value added balanced (GVA(B)) provides data at a sub-national level. We have used this data for pre-pandemic and sub-national analysis. For time series data we looked at the GDP Monthly Estimate from the Scottish Government.
- The Business Register and Employment Survey (BRES), from the ONS (Office for National Statistics) is regarded as the official source of employee and employment estimates by detailed geography and industry. We have used this data for pre-pandemic and sub-national analysis.
- Workforce jobs is a quarterly measure of jobs in the UK and is the preferred measure of short-term employment change by industry. We have used this data for our analysis from March 2020 onwards.
When looking at data below Scotland level we have used the NUTS/ITL areas. International Territorial Level (ITL) are the UK’s replacement for Nomenclature of Territorial Units for Statistics (NUTS), which the EU uses to divide member states into smaller statistical areas, to help allocate structural funds and the cohesion fund. The current ITL regions have the same boundaries as the previous NUTS regions.
How important is hospitality to the Scottish Economy?
Pre-pandemic, hospitality generated £5 billion in GVA in Scotland. This was around 3.4% of the Scottish onshore economy in 2019. This is a slightly higher share than the UK where hospitality accounted for 2.9% of the overall economy. While hospitality may have a relatively low contribution to total economic output, it is one of the largest employing sectors in Scotland with around 200,000 jobs (pre-pandemic).
When we look at more local data, hospitality’s importance to local economies can vary. Using the NUTS/ITL regions, discussed above, we can see that hospitality is proportionally more important to the Highlands and Islands than for the rest of Scotland, accounting for 5.6% of GVA and 13% of jobs in 2019. Hospitality makes up 10% of economic output in the “Lochaber, Skye and Lochalsh, Arran and Cumbrae and Argyll and Bute” area of the Highlands and Islands.
What has happened since the pandemic?
If we first look at monthly economic output data from the Scottish Government, hospitality was by far the hardest hit sector during the first lockdown. With economic output falling by 85% between February and May 2020. Output in hospitality has only recently returned to pre-pandemic levels.
Looking at the Workforce Jobs data, this shows us what has happened to hospitality jobs since March 2020. Between March 2020 and December 2020, the number of jobs in the hospitality sector fell by 50,000, or -23%. The number of hospitality jobs had still not recovered to pre-pandemic levels by March 2022. When compared to the UK, Scotland is behind in recovering these lost jobs, as shown in the chart below. Indeed, the latest vacancies data from the ONS shows that hospitality has the highest number of vacancies per 100 jobs in the UK.
Impact of cost of living and energy price rises
The cost of living has increased in the UK, with inflation the highest it has been since April 1991. One of the key contributors has been the increase in gas and electricity prices following the increase in the Office of Gas and Electricity Markets (Ofgem) cap on energy prices on 1 April 2022.
At the start of the pandemic the ONS started the Business Impact of Coronavirus (COVID-19) Survey (BICS) which surveyed businesses across the UK. The ONS has kept this survey going as the Business insights and impact on the UK economy dataset and it now includes questions on the costs of living and energy price rises. The Scottish Government has also been publishing experimental Scottish specific data based on this dataset. This section of the blog provides analysis based on specific questions in the survey.
Has your business been affected by recent increases in energy prices?
Hospitality has been impacted by the increase in energy prices more than all sectors in Scotland. Three in five (60%) of surveyed hospitality businesses in Scotland said that they have seen production, suppliers or both impacted by the energy price increases. It is important to remember that most hospitality businesses are “bricks and mortar” therefore they have higher energy requirements than businesses where employees can work off-site.
In which of the following ways, if any, has your business been affected by price rises?
Responses to this question suggest that hospitality has been hit hard by price increases. The latest data show that only around 1 in 10 hospitality businesses have not been impacted by the price rises. The data shows that hospitality businesses are less likely to absorb the costs and are more likely to pass the cost on to consumers. Indeed, half of hospitality business have indicated that they have had to pass costs on to the customers.
Around half of all hospitality businesses indicated that they have had to pass on costs to their customers, with many saying that price rises are due to increased energy or labour costs.
Conclusion
The data suggests that there could be tough times ahead for the hospitality sector. While economic output has returned to pre-pandemic levels, it is yet to be seen what impact the recent increases in cost of living will have on the sector over the longer-term. Staffing levels are also a major consideration. With record vacancy levels in this labour-intensive sector, and more than half of hospitality businesses already reducing hours, pressure on existing staff could increase in already stressful working environments.
Andrew Aiton, Data Visualisation Manager (former chef), SPICe