Leisure and hospitality industries have faced an extraordinary range of risks and uncertainty in recent years. Change driven by accelerating shifts in technology have been compounded by rising interest in sustainability, regulatory complexity, and a never-ending talent shortage. And of course, inevitably, COVID-19.
Risk managers need to examine this changing environment with curiosity and fresh eyes, because while the risks we’re facing in many cases aren’t new, the landscape has shifted and continues to shake. Against this backdrop, it’s often too easy to fall into the trap of focusing on the risks at the top of lists and minds and miss the related opportunities.
Companies must continuously innovate to stay ahead of the curve and manage risks effectively.”Kelvyn Sampson | GB Industry Lead- Retail and Leisure and Hospitality, Willis Towers Watson
Companies must continuously innovate to stay ahead of the curve and manage risks effectively. Further change is brewing on the horizon and, as the last 18 months have shown us, acceleration can come at any time and force through changes many thought they would have a decade to plan for.
This article provides some context to the changes afoot before exploring three key trend areas for the industry, namely, technology and digitalisation, talent and workforce, and sustainability. We then offer perspectives for businesses to consider as they plan for the future.
Without a doubt, COVID-19 has been a major factor for the leisure and hospitality industry in the UK, with an estimated £220m of sales lost every day since April 2020 to March 20211. Yet change has been deeper than the headlines or balance sheets suggest. Business models have been tossed out the window due to operational complexity and vulnerabilities changing and taking new forms, and that’s even before considering changes on the horizon from key megatrends and their components.
These major drivers for the industry include rapid innovation and the increased proliferation of technology, including digitalisation of products and services, industrial and mobile technology solutions, demand for on-demand delivery, industry competition with new entrants disrupting traditional business models, and the expansion of connected infrastructure enabling virtual and digital transformation to name a few.
At the heart of all of this is the desire to deliver a memorable customer experience. As a sector, operators are united by the fact their products are an experience and it is the ability of a company to successfully manage and deliver this experience that can determine its success.
Customers have new expectations, assets need to be re-evaluated, and sustainability is now a business essential, not a nice-to-have. These changes, paired with uncertainty over when the sector will reach pre-pandemic levels of sales, require businesses to look past COVID-19 and at more emerging risks and opportunities to ensure greater resilience in the future.
By understanding the key megatrends of technology and digitalisation, talent and workforce, sustainability and their components, businesses operating in the leisure and hospitality sectors can start tailoring their strategies to remain competitive in an evolving world, moving from ‘prepare for one’, to ’prepare for all’.
In an industry undergoing unprecedented change, it is unsurprising many of the trends impacting retailers are interlinked and underpinned by technology. The last year has changed business models and radically accelerated digital transformation as companies strive to serve homebound consumers with new products, such as home gym experiences, and as consumers accelerate their on-demand experiences, whether shopping, entertainment, or dining.
Hospitality business leaders have been focusing on accelerating technology adoption and transition to online service model. In 2021, 65% of UK hospitality business leaders have implemented or invested in app ordering systems, pay-by-phone (41%) and online booking systems (41%)2. Examples of this include:
Arguably, COVID-19 has accelerated the inevitable move to digitalisation with an increased reliance on technology and this has further highlighted the need to embed these within business models. These have now become our new normal, but what might be next on the horizon?
The rise of the metaverse – a virtual ‘white space’ that acts as a blank canvass where people can interact with computer-generated environments, objects and scenarios, as well as other users5 – raises questions around the future of location, and how to subsequently deal with areas like regulation and compliance, travel security, and incident management if businesses need to plan for truly virtual worlds.
While Facebook CEO Mark Zuckerberg put the concept of the metaverse in the headlines earlier this year6, the concept has been around for some time. The use of metaverse features like virtual reality could provide customers with the ability to experience distant locations from the comfort of their own home, allow insurers to evaluate sites to gain comfort in risks and controls, and train staff against potential scenarios before they arrive for their first day. Tomorrow’s winners are the ones taking these changes very seriously, considering future technology and how it could be implemented and using it to multiple and integrated advantages.
A wicked nexus of COVID-19 plus Brexit has transformed the workplace with consequences affecting companies, employees, investors, and other stakeholders. From an operational perspective, the UK hospitality industry has lost more than 660,000 jobs over the pandemic and currently faces a shortfall of 188,000 workers, with the shortage of front-of-house staff and chefs being ‘particularly acute’7. There also a rising risk of skills gaps and skills fades in the hospitality industry. This is due to the large break many employees experienced as a result of lockdown keeping them away from day-to-day activities and training, paired with the change in the work environment on their return8.
The COVID-19 pandemic has accelerated a shift to new ways of working, prompting companies to reimagine how, where and by whom work gets done. This shift was already under way with the technological changes of the Fourth Industrial Revolution9, and businesses’ responses need to be integrated across risk management and HR.
Inadequate or badly trained staff can contribute to operational vulnerabilities, regulatory and legal exposures, and even business model and strategy shortcomings. As companies look to reset for the new world of work emerging from the pandemic, they would benefit from an approach that values talent as a key asset that contributes to an organisation’s sustained value creation10.
Where many businesses have embraced technology, a key aspect of this is the need to consider workforce skills and the future of work in an increasingly competitive market. Industries around the world will be bidding for the same small pool of talent. A global talent and skills race – already a big concern a few years ago – has become more of a war today, with one technology media and telecoms executive telling us as they are now competing with sectors like leisure and hospitality for talent.
Organisations need to concentrate their efforts on attracting, developing, and retaining talent to develop a sustainable talent pipeline. It is now incumbent on hospitality and leisure employers to promote their sector to ensure as many individuals as possible are enthused about working in hospitality and for it to become a career of choice.
Running parallel to this is the increasing awareness and demand around sustainability, which has moved from a ‘nice to have’ to a business essential. As UK Hospitality pointed out in their Future Shock issue on sustainability11, those who don’t will run the risk of being isolated by consumers and investors.
Consumer preferences are changing, and individuals are seeking more environmentally sound options. Consumers now expect to see ethically sourced food and drink, evidence of reduced carbon footprint and, increasingly, awareness and action on social issues12. In response, many online travel agencies and search aggregators have developed filters highlighting ‘green’ characteristics to emphasise their commitment to sustainability and accommodate the needs of consumers who rely on their services13.
With COP26 and the path to net zero being driving forces, more is now expected from businesses, employers, and the government to tackle the global climate emergency and the progression towards wider environmental social and governance (ESG) issues. These need to be priority at board level, and go beyond reducing plastics and encouraging customers to support their schemes by bringing reusable cups.
It also encompasses designing and building new sites, retrofitting existing assets in a sustainable way after loss events, and ensuring there are ESG metrics in executive compensation packages. These actions can drive competitive advantage and improved financials. Industry research suggests energy and sustainability certification can reduce operating costs and property risks and increase the value of commercial property by an average of nearly 15%15.
From an operational perspective there are clear lines in the sand where action is needed. UK hospitality businesses have been challenged to improve their energy productivity by 20% by 2030, as set out by the government’s Clean Growth Strategy.16
At the risk transfer end, to comply with financial regulator reporting, financiers, investors, and insurers will increasingly require transparent disclosures through TCFD reporting from 2022 – this covers aspects like business strategy down to metrics and targets.
In many ways, sustainability is not something new to the leisure and hospitality sectors as actions are often centred around operational efficiencies; however, it has deepened and those who embrace it will have a competitive advantage in the years ahead.
What’s clear from each of these trends is that asking the right questions of your policies and practices is essential for making sure you’re ready for any eventuality. That starts with building awareness of the coming trends and having the right risk management in place to mitigate against changing risks. Both moves can help businesses face an uncertain future with more certain confidence.
Interconnected problems require integrated solutions, and this is where scenario-based thinking and expert partnerships can be used to explore changing risk landscape, learn from the last 18 months, and leverage those resilience lessons to explore complex risks and decide what to do next. This will be essential to provide comfort to insurance carriers that your organisation understands the risks and is acting before capacity is questioned.
To support the industry in its journey, we will be undertaking research on new trends over the next year with the Willis Research Network. Our aim is to support understanding, outline risks and highlight opportunities. We believe access to research is essential to building resilience, which is as much a culture challenge as an operational one. Businesses need to be ready for multiple scenarios, and reactive when the exact situation doesn’t unfold as scripted, and awareness of the art of the possible through research partnerships is a key way to explore the challenges businesses are facing.
This kind of approach can support businesses as they consider how their risk registers should change to account for the new world we find ourselves in. For many leisure and hospitality organisations, now is the time to put their risk registers under the microscope in the context of not only the ‘new normal’, but the ‘never normal’.
If you need support reviewing your risk register, or any element of how your business needs to adapt in light of emerging trends, please get in touch.