As much as the hospitality sector looks forward to rolling out the red carpet for guests, there are challenges to be overcome warns Bank of Ireland’s head of Hospitality Sector, Gerardo Larios Rizo.

In the most recent Sector Development Insights report from the bank, Rizo explained that the hospitality and tourism sector faces the challenge of organising and training staff as well as preparing their facilities for what could be a very busy summer for the sector in Ireland.

Reports from various groups continue to show that there is plenty of continued pent-up consumer demand as operators prepare to welcome visitors from 2 June.

“Wedding venues are another sector that although heavily challenged at present could make a stellar comeback as record numbers of weddings are expected for 2022 and 2023”

Rizo warned that the reopening will prove challenging for some businesses as many have expressed difficulties in sourcing staff, particularly temporary staff like college students.

The Restaurant Association of Ireland estimates that nearly a third of restaurant and bar staff may have been lost to the sector due to the Covid-19 related closures.

Rizo said that domestic leisure demand is the first step of demand recovery. Whilst divergent opinions exist about the pace of recovery of other segments most agree that normal demand could recover to pre-Covid-19 levels by mid-2023.

Hosting the recovery

Man with glasses wearing a blue suit.

Gerardo Larios Rizo, head of Hospitality Sector, Business Banking at Bank of Ireland.

“The pent up demand will not necessarily come back in a ‘burst’ despite restrictions being lifted in time for summer trade”

We caught up with Gerardo Larios Rizo to get his perspective on the road ahead for hospitality and tourism operators as Ireland enters a pivotal summer.

What challenges face the hospitality sector now that Ireland is beginning to reopen?

The reopening of business across the sector after a prolonged interruption poses a number of logistical and financial challenges. Not only is the process cash intensive but there’s still some lingering uncertainty about consumer behaviour, government supports and staffing.

Staffing: A number of qualified people left the hospitality industry during the pandemic and moved to alternative employment in other sectors so recruiting new staff might prove difficult for some.  Also, staff have not served customers for some time so they might need retraining as well as some time to regain confidence on their roles.

Demand: Although hotel and restaurant bookings indicate high levels of pent up demand there are still some questions about the return of international travel and corporate demand which are vital for some businesses. Some businesses will have to deal with excess capacity until these markets return, the lack of sporting and entertainment events for example will be missed by some premises.

Cash flow: The reopening is the first point of call before government supports are phased out. As trade resumes, supports like CRSS, EWSS, tax warehousing and commercial rates moratorium will all be gradually removed.  During the pandemic some businesses build up small supplier and revenue balances that will have to be sorted out soon after reopening.  The Covid cash-flow disruption “hangover” will take some time to get sorted.

Inflation: The sector works on tight margins and the anticipated inflation could put pressure on pricing which is never an easy thing to handle.

When do you think the sector will eventually return to pre-Covid levels?

The pent up demand will not necessarily comeback in a “burst” despite restrictions being lifted in time for summer trade.  Capacity will be an issue at first as businesses will have to abide with regulations regarding social distancing which will be gradually eased/phased out much like Government supports.   Overall the recovery should be gradual, as individual markets will recover at a different pace and prevailing restrictions like large social gatherings or non-essential travel will impact Dublin more than the regions.

For the hotel sector domestic demand accounted for an average of  60pc business outside of Dublin pre-Covid which is very positive as it means the bulk of the clientele is ready and able to return. However, overseas and corporate demand are crucial for locations like Dublin, Galway or Cork and can deliver business outside the traditional periods of heightened activity.  Our largest overseas markets include the US and the UK, both of which are bucking the trend in terms of the rollout of the vaccine, which is again very positive, a few premises in key holiday spots are already reporting material number of bookings for these countries. For Dublin the recovery path has to take new supply into account as this will dilute the benefit of the demand as it recovers.

For bars and restaurants, the recovery could be a little patchier.  Premises located in suburban locations could benefit from the rise of localism as well as the large swaths of people that will now permanently work from home a few days a week. While in the short term, the same trend could have the opposite effect in bars and restaurants around large office buildings and business. Similarly, those businesses located around sports and entertainment venues could face weak trading until restrictions on large gatherings are lifted. Its positive to see that some test events are already taking place in Liverpool and Barcelona so hopefully large gatherings will be back sooner than expected.

Wedding venues are another sector that although heavily challenged at present could make a stellar comeback as record numbers of weddings are expected for 2022 and 2023.

Other factors to consider are air capacity and travel restrictions like the mandatory quarantine which many argue could further delay the recovery of overseas tourism.

Will more State support be needed?

The various Government supports have been a lifeline for the sector for over a year at this stage.   The government has insisted supports will be phased off rather than fall of a cliff, and there’s also been promises of a stimulus plan to help the sector recover once restrictions are lifted.   The supports will probably match the easing of restrictions, meaning that some are likely to remain in place until ALL restrictions are lifted.

Grants and supports like the outdoor dining scheme from Fáilte Ireland and the temporary abolition of street furniture fees to 2023 will promote the “safer” outdoor dining which should help encourage people to go back to bars and restaurants.

The “stay and spend” voucher scheme which encourages Irish residents to travel and spend in ROI is also likely to be revamped and relaunched in the near future.

Support may also come from enhanced budget allocations for domestic and international advertising campaigns like Fáilte Ireland’s “Keep Discovering” campaign aimed at the domestic market.

Training/Development: Support in the form of training programmes like the two new Skills programmes developed by SOLAS announced at the end of February will also be needed to attract and retain people in the sector

By John Kennedy (john.kennedy3@boi.com)

Published: 31 May 2021