Intense pressures remain as Scottish hospitality returns to the global stage

This article was originally published in The Herald on 21st July 2022 and relates to a research project funded by The Robertson Trust.

The Open over the last week in St Andrews signalled a return to Scotland hosting events which have a profile around the world. But how resilient does our hospitality sector feel after the pandemic?

High quality hospitality is often seen as a core strength of Scotland’s economy. But the industry is under intense pressure, with rising prices and staff shortages creating a perfect storm after two tumultuous years.

At 174,000, the number of UK wide vacancies within the accommodation and food services sector during March to May 2022 was double pre-pandemic levels. This is not new. Indeed, vacancies have been around this level since last Autumn.  Whilst all sectors have seen an increase in vacancies, the vacancy rate in this sector is higher than any other, at 13.4% of total vacancies.

For many hospitality businesses, problems around staffing have created pressing challenges, such as limited capacity, logistical difficulties and long hours for the existing workforce, all at a crucial time of year for the industry.

Wage demands from applicants and expectations around flexible working were reported as the main difficulties for businesses trying to recruit in the food and accommodation sector in Scotland in Q1 2022 alongside a lack of applications and job seekers not having the required experience and skills.

This is based on the Fraser of Allander Institute’s Scottish Business Monitor, in partnership with Addleshaw Goddard, which is a quarterly survey of around 500 Scottish businesses. The impact of the recruitment crisis has been so stark that there have been recent reports of some businesses turning away customers due to staff shortages.

So, why is this happening now? One reason might be the impact of Brexit and the high number of EU workers who have left the industry, either by choice or due to not meeting new visa requirements.

More broadly, the UK’s labour force has shrunk since the start of the pandemic, with around half a million more people becoming “economically inactive”, meaning they have left work and are not looking for a job. However, the profile of workers who have left the labour force (predominantly workers aged over 50) differs from that of hospitality workers, who tend be younger and poorer than in other sectors.

It is too soon to tell whether the rise in vacancies will lead to a significant rise in hourly pay in order to attract workers. But the reality is that businesses in the sector are struggling and margins are tight, leaving employers with little room for manoeuvre.

Staff shortages are not the only challenge facing the industry. Supply chain issues and inflation are pushing up input prices for businesses. This is often at a significantly higher rate than that experienced by consumers: with the aggregate input inflation rate currently running at 22%.

Of course, inflation affects demand within the sector as well. Household budgets are under enormous pressure and spending on leisure activities such as eating out and holidays could be curtailed for some time.

Between Q4 2019 and Q2 2020, accommodation and food services in Scotland lost 80.1% of its output, measured by gross value added to the economy. This is far higher than 22% drop across Scotland’s economy over the same time period.

Many had hoped that 2022 would be a year of recovery for the hospitality industry. Yet whilst output levels have steadily recovered to overtake their pre-pandemic peak, it doesn’t feel like a recovery for many businesses.

It’s not clear that the immediate pressures facing the sector will recede any time soon. It’s therefore worth considering the long term future of the industry by asking how it can build more resilience into business models and adapt to a post-Brexit, post-pandemic world.

Workers also need to be able to build up financial resilience. Data shows us that pre-pandemic, around 1 in 4 people who lived in a household with a hospitality worker lived in poverty. As the deadline to meet interim child poverty targets comes into view, it’s worth noting that 45,000 Scottish households with children have at least one adult working in the sector.

To recruit and retain staff, now may be the time for more businesses to consider how to deliver a better deal for workers, not just on pay, but also on hours, flexibility, career progression and security.

There is also a role for policy makers and the skills development system, together with employers, to present hospitality jobs as fulfilling long term career choices. Achieving this in an industry experiencing rising prices and tight margins won’t be easy. It requires new ways of working to be adopted.

With this in mind, researchers at our very own Strathclyde University, alongside the Poverty Alliance, have launched the “Serving the Future” research project. They are looking to work with hospitality employers to test employer-generated solutions to in-work poverty within the industry that are sustainable for businesses and lead to improvements in retention of staff and productivity gains.

It will be fascinating to see what ideas are generated and which are most impactful, both for workers and employers.