Report on The Impact of Brexit on Hospitality major field of service industry including accommodation and food

The Impact of Brexit on Hospitality

Introduction

Hospitality industry is a major field of service industry including accommodation, food and drink service, recreation, event planning, and others. Guest service is the focus of hospitality sector. It is mandatory for hospitality management to serve customers with exceptional service. Organisations required understanding their external environment, where they can grab the opportunity to improve current service provisions. The study on the impact of Brexit on hospitality industry will be performed by focusing on Premier Inn, UK. The chosen hotel is the largest hotel brand with more than 785 hotels (Premierinn.com, 2019). It operates in key locations such as airports, city centres, suburbs and others. The countries served by Premier Inn are Germany, the UK, UAE, Ireland, and India. The study aims to determine the impacts of Brexit on Hospitality industry through the application of PESTLE framework. The dynamic hospitality business will be studied considering economic, technological, political, social, cultural and other dimensions.

Discussion of PESTLE concepts

Political factors concerning the hospitality industry include global trade restrictions, Government policies, industry regulations and Brexit incidents. Currently, the industry is highly affected by the incidence of Brexit. For example, Premier Inn relies on a major pool of labours from European Union based on casual zero hour contracts. The access seems to be restricted after Brexit. Trading terms will be changed if there will be no trade deal remain secured between the EU and UK.  The imposition of new tariffs may influence the cost of materials imported into the country. The cost of business for Premier Inn will be increased automatically. The hotel may not have the ease of access to European Union’s low-skilled workers. Immigration restrictions may pose a threat to the hotel post-Brexit. As per a survey conducted by British Hospitality Association, around 15% of the entire hospitality workforce is from European Union (Hospitalityandcateringnews.com, 2019). The number of migrant employees has reduced to 22% in previous years. Recruiting workers in upcoming years may increase the payroll expense with adverse implication on profitability. Currently, purchases account for a large amount of cost for the hotels, at 38.9% of the revenue.

With increase in import cost, the cost associated with purchase will start increasing. Premier Inn may face the risk of disruption to its supply chain in terms of stockpiling. Fixtures, furniture and other equipment required for procurement will be a challenge for the hotel as most of the manufacturing takes place in Europe. Despite negative impacts caused by Brexit, the stable political condition poses as a strength for Premier Inn. The accommodation and food business do not face any obstacles due to strong political leaders and effective business policies. The Government has strengthened its security and vigilance system that has reduced the threats from terrorism. It allows numerous international tourists to visit tourist attractions. Premier Inn has an opportunity to serve foreign travellers through excellent accommodation, food, drink and other services leading to increased revenue. Global trade policies are liberal, and the hotel takes its advantages to operate in different developing nations to occupy large markets.

Economic factors influencing the hospitality industry include exchange rate, inflation, interest rate, globalisation, GDP and others. Pound sterling is reduced to 20% due to Brexit events. Currency volatility influences the cash flow and profitability of the organisation, and this further adds complexity to hotel business. This also enables importing goods and commodities more costly. Rise in the price of food and drink services due to sterling depreciation may have a knock on Effect on the hospitality sector. However, a significant decrease in sterling will attract global tourists, which tends to have a positive impact on the sales of Premier Inn.

Following Brexit vote, it is observed that hotel and restaurants have witnessed 1% and 2% economic growth in first and second quarter of 2017 (Fticonsulting-emea.com, 2019). The slow economic growth resulted from Brexit has negative impacts on Premier Inn, as it cannot face the competition posed from the global hospitality sector. As the long-term outlook for the country is less clear, the hotel is forced to plan for macroeconomic scenarios. The industry has witnessed a great financial performance between 2009 to 2015. The performance has declined by 4% due to ongoing security concern posed from Brexit. The ongoing decline in revenue is a threat to the overall performance of the UK’s hospitality industry. Global market share of the industry may reduce in the future.

Gross domestic product of the UK increased to 1.4% in 2018 as compared to the previous year (Ons.gov.uk, 2019). It shows growth in per capita income of citizen. The sound economy of the country enables Premier Inn to hire more workers and pay them with higher salaries. This improves consumer spending on luxurious services. With higher consumer spending, the revenue of Premier Inn rises at a positive rate. Inflation rate of the UK has reduced to 2.17% in the first quarter of 2019 (Statista.com, 2019). The reduced inflation rate encourages buyers to pay more for same products and services. Interest rate also remains low during this period. Premier Inn shall take advantage of low inflation rate to charge more on existing services to earn more. Endogenous growth theory of economy demonstrates that a country’s economic condition heavily depends on the technological innovation and efficiency of human capital. Skilled human resources and rapid innovation support the UK’s economy. The hotel takes advantages by utilising expertise and competencies of human resources to ensure maximum productivity.

Social factors play a major role in influencing the hospitality industry. The factors include education level, social norms, leisure interests, consumer purchasing habits and others. The education level is high in the UK, which encourages Premier Inn to expand the business by using the talents and expertise of citizens. The hotel has a local market team to understand the consumer attitude towards luxury accommodation and food services. Buyers have a high preference for experiential products and services (Duncan and Cohen, 2016). Premier Inn leverages this trend to provide guests with exceptional services. Brand image, reputation and number of loyal customers improve due to enhanced customer service offered by the hotel. Increase in media outlet is another social factor that influences public opinion. Both traditional and social media platforms act as drivers to determine the level of service provisions required by consumers. This lets Premier Inn understand the lifestyle of consumers and come up with auxiliary services including gym, nightclub, and others to grab consumers’ attention.

According to Geert Hofstede, a country’s culture has different dimensions including power distance, uncertainty avoidance, emotional role distribution among different gender and others (Mazanec et al., 2015). The theorist suggested that these cultural dimensions strongly influence perceptions, views and experience of consumer differently. For example, people with different mindset do not similarly perceive Premier Inn’s service. It becomes necessary to identify the needs, attitude, preference and demands of consumers falling under different sub-culture. 

With an increase in the trend of income inequality, the power structure has altered. Some people are willing to pay more for a particular service, whereas buyers with low income do not show interest in luxury accommodation, food and other services. This rarely affects the low-budget hotel, but the luxury hotels like Premier Inn face challenges while designing specific services for individuals with different income level.

Technological factors influencing Premier Inn can be innovation, social media, automation, artificial intelligence, security and others. With advancements in technology, consumers are expecting efficient, faster and perfect service from the hotel (Bowie, 2018).  Premier Inn is facing challenges to serve customers with standardised service. Social media has changed the relationship of the organisation with its consumers. The hotel is able to advertise the services in a creative way. Customers are getting a chance to share their experience and suggest on how to improve the service. Managing online reviews is an opportunity to offer compensation to unhappy customers. It shows how online platforms are supporting Premier Inn to secure their reputation. Technology brings advantage in check-in and checkout service leading to the elimination of customer waiting line (sonicjobs.co.uk, 2019). This improves the efficiency of business operation by Premier Inn. It is making it simple for guests to specify their needs or requests. CRM tool helps the hotel to track customer activities and manage the data to build a long-term relationship with loyal customers.

Incremental innovation theory allows making small improvements in the current methods, services, and processes. Companion Application, workflow management tool and remote control for hotel rooms are some incremental innovation found in the UK’s hospitality industry. These innovations enable Premier Inn to gain efficiency in its business processes and methods.

Technology advancement has some negative impacts on the hospitality industry. For example, Premier Inn is unable to manage the reviews on online platforms. This can damage the reputation of hotel and its service. While technology has made easy everything for hotels, competition has increased up to a high rate. Online marketplace Airbnb has succeeded in acquiring a large number of consumers by offering low-cost accommodation and food service (technofaq.org, 2019).

Legal factors influencing hospitality industry involve legal protection of data, intellectual property, health and safety norms, and others (Cipd.co.uk, 2019). Premier Inn may face some generic Brexit issues concerning the legal framework. Changes in employment legislation, data protection, the enforceability of contracts, and others will force the hotel to change its internal business policies. This shall increase the daily business expenditure of the hotel. Brexit may result in changes in UK’s ease of access to a single market leading to the restructuring of contracts. Changes to compliance responsibility may put legal burden on Premier Inn.

The principles of Data Protection Act 2018 are helping to resolve the privacy issues of Premier Inn. Its robust mechanism saves the hotel from facing the consequences of data breaches. Health and Safety norms designed by the Government enable employees to carry out work safely without interruption. Premier Inn is able to protect the secrecy of business models and patents by adhering to principles of intellectual property legislation.

Environmental factors affecting the hospitality industry include sustainable resources, ethical sourcing CSR activities and environmental restrictions. The Government pose strict rules on waste elimination and management. This enables Premier Inn to take remedial actions to manage the waste removed from guest activities in such a manner that local communities and animal life. CSR practices initiated by the hotel results in positive business reputation, better financial performance and brand recognition (Rhou et al., 2016). With the implication of unique CSR activities, Premier Inn gets easier access to resources and capital. Renewable technology is another interesting area that allows the hotel to leverage trends and improve its current efficiency. The UK Government has set provisions of subsidies for hotels that are investing in renewable energy. However, the strict environmental norms by the Government are forcing Premier Inn to consider all aspects of sustainability during operation. UK environmental agencies are investigating the business operations of Premier Inn, which adds to the cost of its business operation.

Conclusion

The major point of discussion in the essay is the impact of Brexit on the hospitality sector. Political, cultural, environmental, technological and other external forces affecting the industry have been discussed by taking the example of Hotel Premier Inn. The essay has fulfilled the objectives set in the introduction by specifying the political, economic and legal influence of Brexit on the hospitality sector. It is concluded that hospitality industry is facing major issues such as immigration restriction, labour shortage, and decline in value of pound sterling, changes in legislation and others. GDP growth, high education level, technological innovation and other factors also influence the hospitality business. The positive and sound economy of UK improves purchasing ability of consumers, which encourages Premier Inn to market and promote its luxury services. Leisure interest of consumers is an opportunity to expand its business in different tourist destinations of the world. Technology has brought major changes in the way of operating business and ensured highest efficiency. The distance between customers and service provision has reduced to technological advancement and incremental innovation.

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