- Going out remains “affordable treat” for many but market continues to be tough especially outside London
UK leisure businesses including pubs, restaurants, clubs and cinemas are facing a tough summer as many consumers continue to tighten their belts due to the uncertain economic outlook. Events such as the Olympics are expected to bring only a temporary boost to operators, according to a report* by advisory firm KPMG.
Among those who go out increasing numbers are becoming “professional bargain and discount hunters”, says the report, with 40% of consumers now making a restaurant choice based on offers and discounts available.** Although not favoured by the industry, many operators have become to rely on discounting, including the issue and redemption of vouchers (Groupon and variants of the same), to combat fluctuations in trade. For many businesses the habit is difficult to relinquish.
Justin Zatouroff, European Head of Leisure at KPMG comments: “The prospects for the sector are not exactly rosy and the war for the discretionary consumer pound will continue. The good news is that for many UK consumers a base level of expenditure on leisure is now part of everyday life and eating out especially remains an ‘affordable treat’ for many. London continues to be a market in its own right and businesses in the capital are expected to outperform those in the rest of the country.
“Therefore with little organic growth for the economy in sight, the future for leisure businesses is likely to remain tough but stable and largely unexciting in terms of the potential to implement grand visions and pursue acquisition strategies.”
The estimated value of the UK leisure market in 2011 was around £66 billion, down £4 billion since 2007, the start of the economic downturn. Analysts expect a further dip in 2012. (In real terms, with the effects of inflation removed, the decline in the value of the market is even greater, at 22% between 2006 and 2011.) The sector employs about an estimated 1.8 million people, nearly 10% of total UK employment.***
Against this as a backdrop there appears to be little appetite on the part of major operators to enter into significant M&A activity – not least because growth prospects across the market are limited.
Justin Zatouroff comments: “KPMG’s analysis points to an overall situation of operators continuing to struggle with maintaining margins in a continually tough market. On the positive side, there appear to be few shocks in store for operators and lenders provided the former continue to manage competitively and the latter closely scrutinise the operating performance of businesses they lend to.”
Further trends by segment:
Pub operators are looking to maximise returns from all aspects of operations and to increase overall revenue against a rising cost base (increasing business rates, wages, utility costs, etc) and significant tax impacts. Relative volumes of trade have fallen and there is a general increase in ‘at home’ drinking and socialising. Substantial numbers of operators are having to service relatively high levels of debt
Despite the recent downturn, spend in this segment continues and restaurateurs can forecast trade. However, would-be diners are looking for better value from their dining experiences and are increasingly less tolerant of poor quality product or service. Growth will be hard to come by but the segment is
comparatively stable by retail standards.
Hotel performance rallied a little in 2011 with REvPAR (Revenue per available room) growing in London by 8.4% and the regions by 1.5%. Whilst this trend is expected to continue this year, 2013 might to see a depressed post-Olympic period, particularly for London. This year will be interesting for the budget sector in London as it will have to face the dual challenge of reduced demand and additional capacity as it absorbs the 24,000 new budget hotel rooms added in the capital over the last 3 years.
Health & Fitness centres
Health and fitness centres are finding it hard to increase membership numbers, capital investment for refurbishment and to invest in cutting edge gym technology is hard to come by. Although there has been an increase in value over the past five years, this increase is largely down to improved yields per member and could prove unsustainable without ongoing investment. At the luxury end of this market there has been a significant squeezing of revenue, some consolidation and the overall outlook for the segment remains subdued
Cinemas have fared relatively well with admissions continuing to grow year on year (UK admissions were up 1.4 per cent in 2011 against 2010 at of 171.5 million)**** and with a strong start at the box office to this year. Operators are now coming under increasing pressure to ensure all their screens are converted to digital.
Admissions over the key summer trading period are expected to be adversely impacted by the 2012 Olympics, with much uncertainty around the extent of that impact. Future challenges for operators will be around getting smarter about their customers (use of social and mobile technology as well as loyalty schemes to drive more targeted promotion and grow concessionary spend), finding expansion opportunities while the construction sector remains depressed, and financing the refurbishment of the more tired “first generation” venues before competition from new entrants arrives.
The bowling market in particular has contracted by 17% over the past five years, which equates to a reduction of 33.3% in real terms once inflation has been discounted. Operators who took on rents and other financial commitments which seemed realistic in 2006 are now feeling the squeeze as consumer spend drops and their cost base rises.
A recent slight decline in the market is expected to continue as sites are hit with a double blow, a poorer, more discerning consumer (as the key demographic, the 18-24 year-old group, continues to feel the squeeze with higher unemployment and a rise in business costs.
Note to editors:
*KPMG, Travel & Leisure Sector Foresight, April 2011.
**Mintel Eating Out: The Decision Making Process, December 2011 and KPMG’s own analysis.
***Data from Mintel Leisure Review UK December 2011.
****Figures from EDI Rentrak.
For further information please contact:
Katrin Boettger, Senior PR Manager
Tel: +44 207 896 4232 / 0782 4475168
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.