Why UK hospitality businesses are struggling — and what to do about it

An article by RIC Consultants Hospitality

The UK’s hospitality sector has shown remarkable resilience since the pandemic, but 2024–25 has exposed fresh and serious pressures. Many operators — from independent cafes and pubs to regional hotel groups — report squeezed margins, weaker consumer confidence and mounting uncertainty about the year ahead. The problem is not a single cause but the accumulation of structural cost rises, labour market shifts and changing customer behaviour. Below we set out the key reasons for the squeeze and a practical roadmap operators can follow to remain profitable and resilient.

What’s driving the squeeze

1. Rising operating costs — energy, food and tax-related levies. Energy and utilities are repeatedly singled out by trade bodies and firms as top concerns; new standing-charge models and other network levies are expected to add materially to bills for small businesses in coming years. Food and drink inflation has also remained above historic norms, pushing ingredient costs up across the board.

2. Labour shortages and higher employment costs. Hospitality remains a people-first industry, yet the sector continues to face elevated vacancy rates and recruitment challenges compared with pre-pandemic levels. At the same time, rising minimum wages, national insurance and employer costs have reduced the leeway operators previously used to keep margins healthy.

3. Weakening demand patterns and tighter consumer wallets. Real household incomes and discretionary spending have been volatile; diners trade down, visit less frequently, or shift to lower-cost channels (takeaway/delivery). That mix change hits average checks and table-turn economics.

4. Structural pressures: insolvencies, borrowing costs and regulation. Insolvency levels and constrained access to cheap working capital make short-term shocks harder to survive. Regulatory changes (e.g., sustainability reporting, levies) add compliance costs that disproportionately affect small operators.

Taken together these forces explain why even well-run venues are seeing margins compressed: revenues are volatile while many essential cost lines have ratcheted upwards.

Practical steps to remain profitable (RIC Consultants’ six-point action plan)

1) Get ruthless about cost-to-serve: inventory, suppliers and menus

Menu engineering: identify high-margin dishes and star performers; reduce menu clutter and simplify ingredient lists to lower waste and stock holding. Test price elasticity carefully (small price moves plus perceived value changes often protect margin without losing covers).

Supplier consolidation & dynamic buying: renegotiate contracts, use forward buying on key staples when sensible, and consider shared buying groups for smaller operators to access better pricing.

Evidence from operators shows targeted menu and procurement changes are among the fastest levers to restore margin.

2) Slash energy intensity and control utilities spend

Energy audits & simple retrofits: LED lighting, insulation, kitchen extract tuning, smart thermostats and improved scheduling can cut bills materially. Consider supplier switching and time-of-use changes where viable.

Operational controls: close unused spaces, consolidate services (e.g., cross-utilise kitchen resources), and adopt low-energy practices on slow trading days. Given looming increases in standing charges, reducing consumption per cover is essential.

3) Re-think staffing — flexibility, retention and automation

Flexible rotas & multi-skilling: cross-train staff so fewer people can cover peak shifts; offer predictable hours where possible to improve retention.

Retention over churn: invest in simple benefits, clear progression and wellbeing support — replacing staff costs more than modest retention spend.

Selective automation: labour-saving tech (bookings, contactless payment, kitchen display systems, roster automation) reduces routine tasks and makes leaner teams feasible without service loss.

4) Diversify revenue streams and channels

Off-premise so you don’t rely on covers alone: strengthen delivery, click-and-collect, meal kits or retail lines (bottles, sauces, branded goods).

Events & B2B: corporate catering, private hire, pop-ups and voucher programmes convert otherwise quiet periods into revenue. Multi-brand kitchens / dark-kitchen concepts can monetise the same footprint more efficiently.

5) Use data-driven pricing and reinvigorate marketing

Dynamic pricing & yield management: test weekday vs weekend pricing, set prix-fixe lunch offers and use demand-based seat pricing where sensible.

Maximise LTV (loyalty + CRM): collect guest data, run targeted promotions, and use social media and local partnerships to drive repeat business. Small investments in digital marketing often show strong ROI compared with broad discounting.

6) Strengthen cash resilience and join industry lobbying

Tighten cash forecasting & stress-test scenarios: model 10–20% drop in covers and produce contingency plans (which costs to cut first). Build an overdraft or invoice finance relationship in calm times.

Collective action: engage with trade bodies (they’re actively lobbying on energy levies, staffing and business rates) — industry-wide advocacy matters for policy outcomes that affect survival.

Conclusion — act now, but prioritise the high-impact moves

Survival in the near term demands swift, practical action: cut energy and food waste, sharpen your menu and pricing, stabilise your workforce, and open new revenue channels. Medium-term resilience then comes from digital adoption, smarter procurement and stronger cash planning. RIC Consultants Hospitality recommends operators run a two-day rapid review (cost hot-spot audit + quick menu & staffing fixes) to capture immediate gains, followed by a 90-day plan focused on energy retrofits, tech pilots and a loyalty-led marketing push. The sector is adaptable — the firms that act decisively on the levers above will navigate the next 12–24 months far better than those that wait.

If you’d like, RIC Hospitality Consultants can run a short diagnostic for your venue (cost hot-spots, menu profitability heatmap, quick roster changes) and produce a 90-day action plan tailored to your business. Which of the six areas above would you like us to prioritise for your site?

Get in touch www.richospitality.com