Leisure Report 2021: Top six ‘Obstacles vs Opportunities’ as leisure industry recovers from pandemic
For all its multitude of challenges, COVID-19 will ultimately also provide opportunity for the Leisure industry, with lessons learned and strategic initiatives borne of necessity morphing into long-term growth avenues. But it has also thrown up considerable obstacles that must be navigated along the way.
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Read the full 2021 Leisure Report: responding to an experiential crisis
Leisure is an umbrella term for a diverse range of sub-sectors, each with their own dynamics, idiosyncrasies and directions of travel. These are addressed in our series of Sector Snapshots. But there are also a series of more generic issues that transcend the Leisure market and will affect all the various sub-sectors to a greater or lesser degree.
OPPORTUNITIES – “Rule of Six”
1. A Restless consumer
The UK consumer is effectively chomping at the bit. Having been kept on a leash for three extended periods of lockdown, there is huge pent up demand that is already being released. And figures in Mintel’s “Leisure Outlook – Summer 2021” Report suggest there is much more to come. 36% of those who went to a pub for drinks in the month to July 2021 plan to go more frequently in the next month. 27% said they are more likely to go for a pub meal, 31% more likely to eat at a restaurant with table service. Similar enthusiasm in the Non-Hospitality Leisure sub-sectors. 33% of cinema- / theatregoers in July expect to go to the cinema / theatre more going forward. A similar picture in gyms (35%) and live sporting events (34%). On the consumer side, the appetite for Leisure is most certainly there.
2. Availability of space
Occupier fall-out has been considerable during the pandemic across all Retail destinations, be they high street, shopping centres or retail parks. Figures from the Local Data Company (LDC) show that vacancy rates reached a new high of 15.8% in mid-2021. Usually cited as a barometer of distress and a sad indictment of the high street, vacant units actually represent a major opportunity for other occupiers to acquire new space.
Retailer casualties have included a number of anchor store tenants (e.g. Debenhams) and MSUs (Medium Sized Units) (e.g. Arcadia), meaning that there is unprecedented vacancy of large footprint units ideally suited for Leisure use. There is a real opportunity now for the Leisure sector to reabsorb surplus retail space. Incidentally, this would not for the first time this has happened – retailer fall-out in the 1990s / early 2000s prompted a wave of branded Hospitality expansion into secondary areas of many town centres and the concept of ‘the Leisure circuit’ was born. Narrative on Retail Repurposing is rife, expect Leisure to be a major protagonist and beneficiary.
3. A receptive landlord
The profile of Leisure as a tenant and space occupier has evolved hugely over the years. Originally, it was considered by many landlords merely as a space-filler, almost an afterthought to the mainstream Retail offer. And definitely a low-rent alternative. This perception has changed considerably over the years and most landlords at least acknowledge Leisure’s qualities as a significant footfall-driver. The more progressive landlords are recognising the value of blending Retail and Leisure use so that the two complement each other to best mutual effect. COVID-19 has also played a significant part in redressing landlord – tenant dynamics, such that it is very much an occupier’s market. The net result is that most landlords are much more predisposed to negotiating with Leisure occupiers than they were previously – and perhaps more open-minded in terms of rent expectations than was the case on the past. Leisure operators probably have a better bargaining position now than they have ever had.
4. A market need for vitality
‘Experiential’. The most over-used buzzword currently doing the rounds. But at the same time, the process of reviewing our town centres and assessing their failings ultimately leads back to a simple notion – they need to be more relevant, more exciting, more vibrant, able to evolve and above all, provide a compelling reason to visit. All these aspects are the hallmarks of a Leisure market that thrives on freshness, creativity and new concepts. Not just landlords trying to backfill problematic vacant Retail floorspace, expect Leisure to rise up the agenda across all areas of asset management, repurposing and town planning. And all stakeholders, be they shopping centre owners, landlords, developers, re-purposers, BIDs or Local Authorities, to take Leisure far more seriously in any improvement projects.
5. A multi-channel voyage
Some Leisure sub-sectors lend themselves far more to multi-channel than others. Hospitality is the most obvious one and many F&B operators have crossed the divide to online / takeaway over the course of the pandemic. A much needed source of cashflow when physical outlets were closed, online can become both a major source of revenue and a seamless adjunct to the brand generally. Forecasts suggest that the shift to takeaways / home delivery will endure even after COVID-19 subsides. In the month to July 2021, nearly three in five (59%) of UK adults ordered food for takeaway or home delivery and more than a third (35%) did so more than once. This put participation on a par with the periods before and during nationwide lockdown. How best to embrace multi-channel will depend on the Hospitality operator and on the location. Operators can either choose to leverage their existing capacity and use their existing physical sites (effectively driving more volume from a fixed cost base) or deploy so-called ‘dark kitchens’ to service demand. There are no right or wrong answers and establishing an appropriate strategy is all part of the multi-channel adventure.
6. Welcome to the world of big data
Most Leisure operators have embraced digital capability far more as a by-product of the pandemic, perhaps redressing historic weaknesses in this area. The need to pre-book rather than merely walk-up has increased the interaction between customer and operator, more than often digitally. Many operators have taken the very positive step of developing their own interactive apps. As well as the obvious gains of more versatile booking and ordering processes, the real end game is actually very different – ready access to customer data. As many retailers would attest, customer data is gold dust (Tesco would never have become the force it is without Clubcard). Many Leisure operators now have real-time access to customer data that they can deploy to huge strategic effect – everything from tailoring the offer/menu in local Leisure sites, digital marketing, social media strategies, advertising, new site location planning etc etc. Knowing how to mine this new-found Big Data is a separate challenge (and may involve cost and 3rd party outsourcing), but the basic building blocks are there. Leisure is, by definition, a consumer-centric business. The more Leisure operators know about their customers, the more they can prosper.
OBSTACLES – “Rule of Six ”
1. Consumer reticence
We are bullish generally on the prospects of a consumer recovery, although this is something of a generalisation. For many consumers, it may take considerable time to re-develop sufficient confidence to partake in Leisure-based activities – for others, it may never happen. Some figures from Mintel’s COVID-19 Tracker Market Survey serve as a sobering reminder of this. Even post-lockdown (week 23-29 July 2021), some 44% of survey respondents answered either “Extremely Worried” (16%) or “Very Worried” (28%) to the question “to what extent are you worried about being exposed to the coronavirus.” Some 31% of respondents are still trying to limit the time they spend in-store.
In terms of changes to spending habits compared to before the COVID-19 outbreak, 46% of respondents said they were spending less on Leisure, and only 9% more. Not surprisingly, there are significant age skews, with far greater levels of concern higher up the age spectrum. The implications? Leisure operators will need to be sensitive to these concerns going forward and adapt accordingly – for example, fewer covers, table service and more conspicuous attention to health and hygiene.
2. Rent arrears
The issue of rent arrears is the proverbial elephant in the room, albeit one that is generally considered purely in a Retail context. Leisure is, in fact, even more embroiled, with very few operators meeting their quarterly rent obligations from March 2020 when the pandemic struck. Unpaid rent reportedly amounts to some £6.4bn and a considerable portion of this will be from Leisure operators. The moratorium on forfeiture has thus far prevented landlords from proactively taking action to recover monies owed, but this is scheduled to be lifted in March 2022. From then, landlords will have the power to evict non-paying tenants and pursue payments through the courts. Not all will take this action, but neither will all simply write off any outstanding arrears. Leisure operators need to work with landlords towards compromise solutions (e.g. staggered re-payments, lease re-gears) to avert a potential occupier blood bath. And put negotiations and contingency plans in motion now, rather than wait until March.
3. Staff availability
The staff shortages in the Hospitality sector may be well-documented, but the sheer number of job adverts in restaurant windows on a cursory walk down any high street really brings the issue home. According to the ONS, job vacancies are at their highest levels since records began. There were 102,000 vacancies in the sector from April to June 2021 - a rise of +12.1% compared with the 91,000 figure for the same period in 2019. Separate analysis by UK Hospitality found 80% of businesses reported vacancies for front-of-house roles, 85% for chef roles, 47% for housekeeping and 43% for assistant or general managers, while estimating the overall staff shortfall to be in the order of 200,000. Industry bodies suggest one in five workers have left the sector during the coronavirus pandemic, with COVID and Brexit usually cited as exacerbating the problem. For staff that have returned to their roles, the so-called "pingdemic" has led to further shortages due to workers being told to isolate by the NHS app. But the ONS data suggests a more long-term – and worrying – trend. Job vacancies in the industry were already consistently at high levels before the UK went into its first lockdown in March 2020 - since 2017, vacancies in the industry have been consistently at a staggering 90,000 or more. Blame COVID-19 or Brexit, the issue is more deep-seated – whisper it, but the Hospitality employment market has an image problem which urgently needs to be addressed.
4. Staff costs
Staffing represents a potential double-whammy for Leisure operators. On the one hand, there is a shortage, on the other hand staff costs are increasing considerably. While the majority of the narrative during the pandemic was on the furlough scheme, another significant increase in minimum wages slipped in under the radar. From April 2021, the National Minimum Wage increased by 2.2% from £8.72 to £8.91. The age threshold was also reduced from 25 to 23. The London Living Wage is higher still at £10.85. Cumulatively, the National Minimum Wage has increased by £2.72 (+44%) over the last decade. While no one should begrudge hard-working Leisure staff a decent wage, this remains a major cost headache for many operators – to put this into perspective, how many Leisure operators have grown their top line +44% over the same timeframe? Very few and the dynamic of costs outstripping sales is a very real one for many Leisure operators.
5. Supply chain shortfalls
Two key intertwined issues stand to exert pressure on Leisure supply chains in the short- to medium-term: Brexit and a lack of HGV lorry drivers. Many of the horror-story Brexit predictions of supply chain meltdown have not materialised, but a number of Retail and Leisure operators have already flagged increased paperwork and red tape, others the need completely re-engineer EU-UK and GB-NI supply chains. Either way, there is a heightened risk of supply shortages and higher costs, which the Leisure operators must either absorb themselves, or try to pass onto the consumer. In addition to staffing their actual sites, a tight labour market is also impacting on many Leisure operators’ supply chains.
A survey by the Road Haulage Association (RHA) estimated there was a shortage of more than 100,000 drivers in the UK, out of a pre-pandemic total of about 600,000. The RHA has said some 30,000 HGV driving tests did not take place last year because of the pandemic, adding that a "historic" shortage in drivers had been exacerbated by changes to rules following Brexit. Analysis of the latest ONS Labour Force Survey for the second quarter suggests that 14,000 EU lorry drivers left jobs in the UK in the year to June 2020, but only 600 had returned by July 2021. It may take the likes of McDonald's running out of milkshakes at certain sites or Nando’s having to temporarily close ca. 50 sites on account of running out of chicken for the extent of these supply chain pressures to hit home.
6. Multi-channel teething
‘Necessity is the mother of invention’. Most Leisure operators, one way or another, were forced to embrace the digital world during the pandemic, whether that was to install online booking capabilities, apps, or particularly in the case of the Hospitality sector, embrace online delivery for the first time. In an effort to maintain some level of cashflow, many Hospitality players became multi-channel operators during the pandemic by default. Few are likely to simply turn off the online tap now, despite physical sites reopening. The transition to multi-channel is potentially a very lucrative one, but also one fraught with pitfalls, as many retailers have found to their chagrin.
As well as the obvious challenges of ensuring efficiency across the delivery network (and successfully working with relevant 3rd parties), there are whole host of other considerations – consistency of quality, product, pricing and branding and seamless integration of all channels, physical and online. The flipside of opening up to a wider audience is that it heightens to risk of brand devaluation e.g. if a Deliveroo driver messes up, in the eyes of the consumer, it will still reflect badly on you as a brand. Multi-channel brings much more complexity into the business model. Complexity also usually equates to cost and requires considerable management.