What’s happening in Hospitality & Leisure

In our first review of the hospitality and leisure market we analyse how the hospitality and leisure sectors (hotels, pubs and restaurants, sport and leisure, travel and tourism and gaming) are performing and share our views on the likely short term and long-term market developments, as well as what it means for deals in the sector.

Unsurprisingly, as with all consumer segments, hospitality & leisure spend has been badly impacted by the economic recession. Consumers have found their disposable income being squeezed by low income growth and by strong inflationary pressures in areas of essential spending such as fuel, food and housing. At the same time, the prolonged economic uncertainty has meant that consumer confidence (and therefore willingness to spend) has been deteriorating. A recent survey we did with 2,000 UK consumers shows that people are as pessimistic over their disposable income in the next year as they were in the first quarter of 2009, early on in the previous recession. The deterioration in confidence over the last few months has affected all population groups, even those who were more resilient through 2010 and 2011 such as 18-24 year olds.

Despite a difficult background, some hospitality & leisure segments and companies have bucked the trend and performed well. For example cinemas have proven resilient as they offer good value for money entertainment and they are enticing consumers with new technological developments. New concepts are also emerging, such as value gyms, which allow consumers to pay for what they really want to consume by stripping out extra features and services which consumers value less.

Deal volumes in the sector have unsurprisingly declined, although a number of deals have completed in 2011 - early 2012, including Audley Travel, Travel Republic, Capital Pub Company, EAT. In this market context, the focus is more than ever on finding a target with a clear and differentiated proposition, and the right operating and property models.