Hospitality in 2025 – a sector under the cloche?
Introducing our first annual Hospitality Sector Report
Our inaugural Hospitality Report provides key insights into the trends, challenges, and opportunities shaping the sector in 2025. Covering topics such as rising costs, workforce pressures, sustainability, and digital transformation, the report examines what matters most for hospitality businesses today and how to prepare for the future.
Read the full report below.
Introduction from Peter Davies, Partner, Hospitality
I’m delighted to present the first edition of our annual hospitality report.
Over the past twelve months, the UK hospitality industry has navigated a complex and often unforgiving environment, marked by cost pressures, shifting consumer behaviour and structural challenges that have tested even the most resilient operators. Rising operating costs have been a defining theme.
The rise in labour costs, due to increased national living wage, higher employer national insurance contributions and challenges hindering recruitment, has squeezed margins. At the same time, the reduction in business rates relief and persistently high energy, food and insurance costs have compounded financial strain, particularly for small and mid-sized operators with limited cash reserves.
Labour shortages remain a problem, and many businesses report ongoing difficulties recruiting and retaining skilled staff. The changes to the skilled worker visa regime have had an impact and, with immigration at the centre of debate, the situation is likely to escalate in the years ahead. High staff turnover and the need to raise pay to attract talent have intensified the cost burden. The consequence has been curtailed trading hours, diminished service capacity and growing reliance on technology to offset staffing gaps.
On the demand side, the cost-of-living crisis continues to dampen consumer spending on discretionary leisure activities. Households, facing higher mortgage costs and everyday expenses, are increasingly selective about when and where they dine out or travel. While footfall has recovered in parts of the sector, real spending power remains subdued. For many operators, the dilemma has been how to raise prices enough to offset inflation without alienating cost-conscious customers.
The financial fragility of the sector is evident in rising insolvency rates and declining profit margins, particularly among independent venues. Regulatory complexity, ranging from employment law changes to sustainability and energy-efficiency mandates, adds further pressure, often requiring investment before any tangible return is realised.
Yet amid these challenges, important opportunities have emerged. Consumer appetite for meaningful experiences remains strong. Spending may be cautious but it is increasingly value-driven, favouring authenticity, quality and personalisation. Businesses offering distinctive, experience-led hospitality – whether through boutique stays, experiential dining or wellness-oriented leisure – continue to outperform. Similarly, the shift towards sustainability presents a both reputational and operational upside, as customers gravitate toward environmentally responsible brands.
Managing workforce issues is also vital. Hospitality businesses are people businesses. Those forward-thinking employers who actively engage with their employees to promote autonomy, better mental health, appropriate rewards and improved team cultures, and offer career development pathways are well-placed to see lower levels of employee churn than their competitors.
Digital transformation is another key frontier. From AI-assisted scheduling to contactless ordering and data-driven inventory management, technology offers greater efficiency and improved guest experience. Operators that combine operational discipline with innovation and a clear sustainability strategy are best positioned to weather current headwinds.
Ultimately, the sector’s outlook hinges on balancing financial resilience with creativity: meeting evolving consumer expectations and investing in employee engagement, while navigating a still fragile economic landscape.
M&A in the hospitality sector
By Andrew Williamson, Partner, Corporate Finance, Moore Kingston Smith
There has been significant M&A activity in the UK hospitality sector in the past year, with investment volumes back at pre-pandemic levels. We started to see M&A activity ramping up in the second half of 2024, with last year delivering a 40% year-on-year increase in the number of deals completed. Q4 2024 produced a record number of transactions – 62 in total. While 2025 has seen a slight reduction in quarter-on-quarter activity, the full year looks on track to exceed 2024’s numbers.
The number of transactions involving pubs, bars, and fine and casual dining establishments, has remained relatively constant over the last three years. However, since mid-2024, we have seen increasing appetite from acquirers for hotel and other leisure deals.
Quarterly deal volume
‘Other leisure’ captures experience based, recreation oriented and wellness focused businesses which generate revenue through entertainment, activity participation or wellbeing services, rather than food, drink or overnight stays. They tend to be more discretionary, seasonal and experience driven, making them sensitive to consumer confidence but also key beneficiaries of the long-term trend towards spending on experiences.
Despite broader economic uncertainty, the UK’s hotel market has demonstrated remarkable resilience. Leisure travel recovered rapidly post-pandemic, supported by domestic staycation demand and a steady return of international visitors. Business and event travel, while slower to rebound, has continued to strengthen throughout 2024 and 2025. This consistent occupancy recovery, especially in regional and resort destinations, has made hotel assets attractive for investors seeking stable, cash-generating operations.
Planning constraints and high construction costs have limited the development of new hotels in the UK, particularly outside central London. This restricted new supply, combined with growing demand, supports rate growth and occupancy levels in existing properties.
2025 YTD deals by sector
Deals by sector
For acquirers, this creates favourable market fundamentals that can underpin long-term asset appreciation. Questions remain about whether the ever-increasing growth in London of ultra-luxury hotel accommodation, funded in the main from the Middle and Far East, can continue or whether saturation point will be reached. The number of new openings aimed at the £1,000+ per night market suggests that point is yet to be reached.
Notable UK hotel deals
In June 2025, real estate investment specialist, Tristan Capital Partners acquired budget hotel brand, easyHotel, in a deal reported to be worth more than £350 million. The acquisition of easyHotel includes an estate of 48 hotels, comprising 16 franchised sites and 32 owned and leased hotels across the UK and Ireland, France, Benelux, Spain, Switzerland, Germany, Portugal, Hungary and Bulgaria.
In July 2025, one of the UK’s largest privately owned hotel owner operators, Arora Group, acquired Bloc Hotels, a design-led hotel group recognised for its innovative use of high-spec rooms optimised for short stays. Current locations include the 245-bedroom Bloc Gatwick, South Terminal and 105-bedroom Bloc Birmingham, Jewellery Quarter, along with two further UK sites that are yet to be developed. This acquisition is the latest addition to Arora Group’s diverse portfolio of assets in key business and travel hubs across the UK.
In January 2025, the Latin-American-inspired Cabana restaurant chain underwent a management buy out, supported by newly formed investment platform, Cherry Equity Partners.
In August 2025, the founders of the UK’s Pizza Pilgrims announced they had sold a majority stake in the business to L’Osteria. L’Osteria is backed by McWin, a leading private investment fund specialising in the foodservice industry, whose current portfolio includes leading hospitality brands such as Gail’s, Big Mamma Group and Sticks’n’Sushi.
In October 2025, the Côte brasserie restaurant chain was sold to Karali, a multi-national family-owned business, operating significant franchises in the hospitality sector. Côte was previously bought out of administration in 2010 by Swiss private equity house, Partners Group, for £55 million.
Private equity
Private equity firms have been targeting hospitality businesses. They have been involved historically in c. 25% of all transactions in the sector, investing either directly or via an existing portfolio company. In Q3, private equity was involved in one third of all the deals we recorded, which is a high point of activity.An interest rate cut in August, reducing interest rates to their lowest level for two years, may have provided a boost to private equity transactions, allowing more affordable leverage to come into the market. However, hopes for further rate cuts before the end of the year dissipated in September as less favourable UK economic data emerged.
Private equity investors are not just buying bricks and mortar, although asset-backing is attractive and helps with leverage. They are looking for businesses where the operational model can be improved via digital tools, efficiency gains, sustainability and modernisation. For example, investing in tech, better guest experience, streamlining operations and improving energy efficiency is often part of the investment thesis.
Private equity firms are particularly drawn to the value creation potential within hotel operations. Through better cost management, digitalisation and refurbishment or rebranding, margins can be improved substantially. The ability to reconfigure hotels for mixed use purposes, such as incorporating co-working spaces, leisure facilities and extended stay offerings, adds further upside.
Percentage of PE-backed deals
Notable PE-backed deals
In February 2025, US private equity house, Fortress, completed the £354 million acquisition and take-private of formerly AIM-listed UK café bar group, Loungers. Operating the Lounge, Cosy Club and Brightside brands, Loungers has more than 250 venues across the UK.
In May 2025, The Oakman Group sold 10 freehold pubs to Brunning & Price, the pub division of The Restaurant Group, whose principal trading brands are Wagamama and Barburrito. The Restaurant Group was bought by US private equity firm, Apollo Global Management, in December 2023 for £701 million.
In August 2025, Dishoom secured investment from L Catterton, with speculation at a valuation in the region of £300 million. The ambition is to expand internationally, notably in the US.
One to watch – employee ownership?
Transitioning to employee ownership has become increasingly popular for succession planning in the UK over the last decade. The first signs that the hospitality industries might be adopting this model came towards the end of 2024.
In October, the founders of Lunya, a Catalonian restaurant and bar in Liverpool, announced they were selling their shares to an employee ownership trust (EOT). This gave Lunya’s employees greater say in the business’s strategic direction and a stake in its financial success. Also in October, the owners of Sheffield’s Abbeydale Brewery announced they were selling their shares to Sheffield Beerworks EOT.
For business owners considering their retirement or exit options, EOTs provide a clear succession plan, enable an exit when there is no obvious third-party purchaser, help preserve company culture and maintain independence. They also confer significant tax advantages over a third-party sale, in that no capital gains tax is payable on the sale of shares to an EOT.
Employee churn is significant in the hospitality sector. As businesses look to reduce staff turnover and foster longer-term engagement among their employees, a transition to employee ownership could help improve team retention. We expect to see more high profile hospitality business owners look at sales to EOTs as a potential exit route in the future.
Hospitality industry stock performance
Global stock markets have been extremely volatile this year. The S&P 500 fell by 5% in Q1. Investors were concerned about the impact of the new president’s fiscal and foreign policies on the US economy – particularly the announcement of trading tariffs, which they worried would lead to higher consumer prices and a global economic slowdown.However, as the US rowed back on the enactment of tariffs, investors returned to the market. Those who had held their nerve to ‘buy the dip’ saw substantial gains within a short period. The S&P 500 ended Q2 10% up on the quarter. This bull run continued in Q3, with the S&P 500 up a further 8%. Cumulatively, the S&P 500 has delivered 14% gains in the first nine months of 2025.
The picture is very different when we look at UK quoted hospitality stocks, which have largely underperformed the market this year. Of the 12 pub, hotel and restaurant groups we track, only three saw their share prices increase during the first nine months of 2025, with the remaining three quarters in negative territory.
Comparing the relative performance of hotels against restaurants and pubs and bars, we find that all groups saw declines in their share prices, on average. However, hotels suffered the least, with an average fall in value of 3% across the period. Pubs and bars saw their share prices fall by 6% on average, and restaurants 10%.
Hospitality share price performance
The star performer, bouncing back this year, was AIM-listed Comptoir Group, which operates three restaurant brands focused on Lebanese and Middle Eastern food, its flagship brand being Comptoir Libanais.
Its share price performed well in Q1, fell in Q2 as the national living wage and national insurance contributions changes took effect, but recovered strongly in Q3, with investors responding positively to its latest set of results, which revealed a return to growth amid wider sector challenges. Comptoir ended the first nine months of 2025 with its share price up by 54%.
The bottom performer this year was Bow Street Group, which operates restaurants under the Wildwood and dim t brands. Bow Street is AIM-listed and was formerly known as Tasty but changed its name in September 2025. As we saw with the whole of the sector, Bow Street’s share price took a hit in April, as the national living wage and national insurance contributions increases were enacted.
It saw a brief uptick in early August, when it announced it had completed a £9.25 million fundraising and was pursuing an expansion strategy, with a view to acquiring new restaurant brands. However, this investor interest was short lived and the share price continued to drift, closing 51% down by the end of September.
Distressed M&A
By Ryan Davies, Partner, Restructuring and Insolvency, Moore Kingston Smith
The UK hospitality sector faced considerable challenges in 2025, which contributed to a wave of insolvencies. In May, UKHospitality announced that a survey of its members revealed that one third of hospitality businesses are now operating at a loss and are at risk of failure. 60% of businesses in that survey said they had to cut jobs and 63% reported they were reducing staff hours to try and mitigate cost increases and stay afloat.
Against this backdrop, many hospitality operators, even those with strong brands, have been unable to meet their financial obligations and forced to consider some difficult options, namely restructuring or potentially insolvency.
Accelerated M&A, particularly through pre-packaged administrations, has become a critical mechanism for preserving value and protecting jobs in the sector. A pre-pack administration is a form of insolvency procedure where the sale of a business or its assets is arranged before the company formally enters administration, and the transaction completes immediately on the appointment of administrators.
Buyers can acquire profitable parts of the business without inheriting legacy debts. This enables a swift transition, helping to preserve business continuity and stakeholder value. For hospitality businesses, speed is essential when brand value, perishable stock and customer goodwill are at stake.
In the current climate, pre-pack administrations are no longer rare; they are becoming mainstream for repositioning distressed hospitality businesses. For investors, they offer access to established brands and infrastructure at reduced cost, often with the flexibility to restructure leases, renegotiate supply chains and reposition the offering.
We expect to see more accelerated M&A activity in the rest of 2025 and into 2026, with pre-packs featuring both as a tool for existing management and stakeholders to save the business but also for shrewd investors looking to acquire key assets at keen prices.
Notable UK pre-pack deals
In January 2025, US-based private equity firm, Directional Capital, acquired Pizza Hut’s UK dine-in restaurants, after the business entered a pre-pack administration. The deal involved the transfer of 139 Pizza Hut restaurants with over 3,000 employees. Directional Capital also owns the company which operates Pizza Hut restaurants across Sweden and Denmark.However, ten months later, Pizza Hut UK entered administration again, and this time only half the sites could be saved through a pre-pack deal with US group, Yum! Brands, which owns the global Pizza Hut business as well as KFC and Taco Bell.
Having supported the MBO of Cabana in January, Cherry Equity Partners went on to pick up a couple of restaurant chains via pre-pack transactions. In March, it bought French-themed restaurant group, Bistrot Pierre, out of administration, in a deal that allowed ten of the group’s restaurants to continue to trade, safeguarding almost 400 jobs.
However, eight restaurants were not included in the deal, and were therefore closed, with 158 redundancies. In July, it acquired Italian restaurant chain, Gusto, securing the future of seven locations, in a pre-pack deal that resulted in the closure of six sites and approximately 190 redundancies.
In July 2025, Thai restaurant chain Busaba Eathai was sold through a pre-pack administration deal, saving seven restaurants and c. 240 jobs, to Seaco Investments. Busaba was founded in London in 1999 by Alan Yau, the restaurateur also known for creating the Wagamama and Hakkasan groups.
The debt landscape
By Guy Taylor, Partner, Corporate Finance, Moore Kingston Smith
The UK hospitality sector is stabilising but lenders remain selective when choosing which deals to back. Debt markets have reopened for hotels and restaurant groups, though appetite remains cautious. Elevated interest rates and economic uncertainty mean credit is available only to operators with strong financial discipline, clear strategies and proven resilience.
Hotel lending has improved alongside rising occupancy and transaction volumes. Banks and alternative lenders are supporting branded, well-located or consistently performing properties, particularly those with ESG-linked investment plans. Typical loan-to-value (LTV) ratios sit at around 60-65%. Lenders favour stabilised trading, strong management, brand recognition and clear capital expenditure visibility.
Larger, multi-site restaurant operators can still access funding but smaller independents face limited options. High borrowing costs – often 9-10% for non-bank loans – are deterring many from taking on new debt. Lenders are prioritising businesses with good track records, robust unit-level profitability and diversified revenue channels. Loan structures are conservative, with lower LTVs and more personal guarantees.
Cautious bank lending has fuelled the rise of alternative providers: private debt funds, challenger banks and revenue-based lenders such as 365 Finance and Capify, offering flexible repayments linked to turnover.
Overall, capital is available but conditional. Only well-run, well-capitalised operators with credible growth plans and strong trading data can expect meaningful lender support in the current climate.
Notable UK debt-funded deals
Having sold a minority stake to PE-house Active Partners in 2017, the founders of Caravan took back full ownership of the 12-venue hospitality group through a leveraged management buyout, in March 2025, with debt for the transaction provided by HSBC.
In July 2025, Scottish bar and restaurant operator, Buzzworks, announced that it had secured funding from Cynergy Bank to support the management buyout of the group.
Doing more with less: a people perspective on hospitality
By Marie Cosma, Senior HR Business Partner, Moore Kingston Smith HR Consultancy
The UK hospitality sector has spent the past year adjusting to rising employment costs, persistent labour shortages and shifting employee expectations. From pubs to restaurants, hotels and leisure venues, operators have been focusing on delivering the same high standards with fewer people and tighter budgets, all while trying to retain talent and protect service quality.
In the last year, the sector has seen a rise in employment-related costs, including a rise in the national living wage and employer national insurance contributions, and a drop in the earnings threshold.
At the same time, burnout and disengagement became critical issues. Long hours, understaffing and increased responsibilities have taken a toll on frontline teams. Hospitality managers reported increased workloads, while staff expressed concern that businesses were prioritising profit over people.
Despite these challenges, many operators have responded with creativity and compassion, recognising that employee engagement is not a luxury but a necessity for survival and growth.
Key measures that employers have implemented to foster belonging, protect against burnout and increase staff retention include flexible rotas, rest time, mental health support, recognition and reward schemes, upskilling and internal mobility initiatives, investment in leadership training, inclusive team rituals and employee feedback channels.
The past year has shown that, even in a constrained environment, people-first strategies can drive resilience. As the sector looks to 2026, the challenge is to embed these practices into long-term workforce strategies, not just as crisis responses but as core business principles.
The businesses that succeed will be those that make work sustainable, meaningful and human because, in hospitality, people are the product.
Examples of best practice
Z Hotels partnered with the charity, Hospitality Action, to put in place wellbeing champions, mental health first-aiders, and organise regular wellbeing check-ins for their staff.
Travelodge transformed its employee experience by implementing a new mobile-first workforce management solution. Its employees now independently manage their rotas, shifts, payroll validations, and personal admin tasks directly from their smartphones. This streamlined approach has significantly enhanced job satisfaction, resulting in a 10% improvement in employee retention year-on-year.
Hilton’s “Thrive at Hilton” programme offers staff access to wellbeing resources, flexible scheduling, and career development assistance, helping reduce stress and improve staff retention.
Hyatt collaborated with nonprofit organisation, Mind Share Partners, to broaden its employees’ understanding of mental wellbeing, normalise experiences, eliminate stigma, and create a dialogue around the importance of mental health.
Hospitality workforce: the challenges and opportunities ahead
By David Sheen, Public Affairs Director, UKHospitality, the trade body for hospitality in the UK
The hospitality sector is one of the UK’s largest employers, providing jobs for millions and acting as a vital engine of economic growth, but it is also one of the most exposed to rising costs and regulatory change. Workforce issues sit at the heart of both the challenges and the opportunities for our industry – and UKHospitality is leading the charge to ensure that solutions work for both businesses and employees.
The 2024 budget created significant headwinds, with increases in employment costs adding pressure on businesses already navigating tight margins. Operators across the country are having to make tough choices about recruitment, hours and investment, as our member surveys have continually reported. The Low Pay Commission will recommend further rises in the minimum wage from April 2026, so businesses will need to focus on keeping hospitality jobs sustainable while ensuring team members are fairly rewarded.
This is why the 2025 budget is so critical. Through our #TaxedOut campaign, UKHospitality has driven home the message that the sector cannot shoulder ever-increasing costs without consequences for jobs, communities and growth. The campaign has gained real traction across political, media and social media channels, positioning hospitality’s workforce agenda firmly in the national conversation.
Meanwhile, the Employment Rights Bill, due to receive royal assent this autumn, will bring fundamental changes to the relationship between employer and employee. UKHospitality has been at the table throughout, helping shape provisions on guaranteed hours contracts, predictable shifts and changes to rules on unfair dismissal.
Our aim has been clear: to balance protection for our teams with the flexibility and seasonality the sector needs to thrive. We have argued strongly for a 26-week reference period for assessing regular hours, for example, to avoid contracts that don’t work with seasonal trading patterns. Equally, we are pressing for exemptions for casual and short-term workers, and for a pragmatic approach to notice periods on shift changes.
It is also imperative that businesses get the information and time they need to prepare. We are firmly focused on creating this dialogue and have been supported effectively through our partnership with Moore Kingston Smith, which continues to build. The firm’s particular expertise on tipping has been a huge aid to both UKHospitality and its members.
UKHospitality remains committed to constructive dialogue with the government, parliamentarians and stakeholders. By working together, we can build a workforce framework that is fair, flexible and fit for the future – one that sustains jobs, supports growth and strengthens our high streets for years to come.
A new landscape for tips and gratuities
By Peter Davies, Partner, Head of Hospitality, Moore Kingston Smith
In October 2024, the Employment (Allocation of Tips) Act came into force, representing a significant change in the way that tips, gratuities and service charges are regulated in the UK. For the first time, businesses were obliged to pass 100% of service charge proceeds to their staff within a specified timeline, consider agency workers and have regard for issues of fairness and transparency. Employees had new rights to access certain information and to launch tribunal claims against their employers if they felt the legislation was not being followed.
The new legislation has not, however, meant a year of certainty and plain sailing. For employees, the increase in the tips they actually received thanks to the new law was more modest than expected – around 7% on average – indicating that employers had already been passing all proceeds to their teams, bar administrative costs. Additionally, economic uncertainty and challenging trading conditions for the sector have meant that this increase has, in many cases, been outweighed by a fall in customer numbers and spend.
Workers are challenging the new legislation, with the first significant employment tribunal expected in April next year. It will revolve around what is ‘fair’ and the degree of transparency that an employee may expect.
Many operators moved to using tronc systems for the first time and, perhaps worried about what was fair, chose to introduce simple systems which divided money equally. A year on, the implications of that decision are being felt, partly from an operational perspective but also in terms of labour costs.
The UK government has already announced that the tips legislation will be amended in October 2026 and a consultation is expected early next year. While the full detail is not yet known, we can expect more emphasis on employee participation in deciding how tips and gratuities are shared, formal consultations at regular intervals and when tipping policies are introduced, and potentially more challenges to businesses and Troncmasters from their teams.
Productivity in the hospitality sector
The legislation mandating how tips are paid to staff in a timely fashion means that we are well placed to analyse the underlying performance of hospitality businesses. We manage tronc allocations for over 300 hospitality businesses operating across nearly 900 sites, the majority using our proprietary software, TroncBox. In April, we launched the Moore Kingston Smith Hospitality Sector Index (HSI). The HSI compares changes (on a like-for-like basis) in revenues and hours worked relative to the prior month, offering a broad indication of productivity changes on a month-by-month basis.
While the HSI is still in its infancy, the data reveals that, throughout the spring and into the summer, the hospitality sector made month-on-month improvements in productivity in an attempt to counter the impact of the government led increases in employment costs. However, the August data suggests that the scope to continue to manage costs by reducing working hours is limited and can no longer keep pace with changes in revenue, leading to a decline in productivity. We expect this trend to continue through the autumn months.
Moore Kingston Smith Hospitality Sector Index
Across the UK, the broader economic environment continues to affect consumer behaviour. Persistent cost of living pressures, coupled with growing concerns about potential tax increases in the forthcoming budget, appear to be prompting consumers to tighten discretionary spending. This is reflected in reduced customer volumes and lower average transaction values. The data suggests that businesses are navigating a challenging landscape, balancing operational efficiency with the need to maintain service levels and customer experience.
Revenue growth and hours worked
Fine dining restaurants
Pubs & bars
Casual dining restaurants
Hotels
Spotlight on London
Focusing on our London-based clients, we see that, while hospitality venues in the nation’s capital have broadly weathered the challenges of the past year, certain postcodes have fared better than others.
We analysed the average daily revenue for each London postcode registered in our TroncBox software, and calculated the average monthly growth or fall across each postcode area since October 2024.
The area recording the highest average monthly revenue growth is East London (E), followed by Central London (EC). These areas benefit from corporate and business-related spending, which is underpinning their growth.
The area showing the greatest average monthly fall in revenues is North London (N), closely followed by North West London (NW) and South West London (SW). This suggests that more suburban areas of London have struggled.
However, the average percentage movement in monthly revenues across all postcodes is minimal. There are no wild swings, suggesting that London hospitality venues’ performance has remained relatively stable, despite broader economic challenges.
Average monthly revenue growth across London
October 2024 to September 2025
Why FRS 102 will make hospitality businesses look more profitable
By Katherine Edwards, Partner, Moore Kingston Smith
The forthcoming changes to FRS 102, effective for accounting periods beginning on or after 1 January 2026, are expected to make many hospitality businesses appear more profitable, even though their underlying performance and cash generation remain unchanged.
Under the revised standard, leases (such as those for venues, hotels and equipment) will be treated as asset financing arrangements. This means operators will recognise both a right-of-use asset and a corresponding lease liability on their balance sheets. Rental payments, previously recorded as operating expenses, will instead be replaced by depreciation and interest charges.
Because EBITDA excludes both depreciation and interest, the new treatment will result in higher reported EBITDA and operating profit, despite no economic improvement in trading performance or cash flow. For lease-heavy operators such as restaurant groups, pub chains and hotel businesses, this accounting change will present an artificial boost in profitability.
However, an increase in interest expenditure could have a significant impact on existing debt covenants. Higher interest charges may tighten gearing covenants increasing the risk of covenant breaches and potentially triggers lender-imposed restrictions or additional reporting requirements. There could also be an impact on refinancing negotiations, reducing flexibility in securing favourable terms and therefore increasing overall financial risk.
Many of our clients in the sector – particularly those with substantial leased property portfolios – have already begun preparing for these changes, which have potential commercial and regulatory implications, including:
- revisiting contractual agreements, such as banking covenants, deferred consideration payments and performance incentive schemes, which often rely on EBITDA or gearing ratios;
- possible movement across company size thresholds, as gross assets on the balance sheet increase;
- communicating the effects of these changes to stakeholders, such as investors, to manage their expectations.
Steps hospitality businesses can take to increase actual profits
By John Williams, Employment Tax Director, Moore Kingston Smith
The accounting changes brought in by FRS 102 may make hospitality businesses’ profits look bigger, if EBITDA continues to be a key profit performance metric. However, this is purely a presentational effect. In fact, many hospitality businesses have seen their operating margins erode, due to increasing costs of raw materials and higher labour costs.
During the past year, many of our clients have sought to mitigate these increased costs, to shore up their profit margins. Some of the methods include:
Implementing salary sacrifice schemes
Through a pension salary exchange arrangement, employees exchange salary for direct pension contributions, reducing their salary by the amount of the pension contribution. This means that both employer and employee pay less in NICs.
Care must be taken not to reduce any employee’s pay below the national minimum wage. These arrangements have been most effective for retaining staff in higher paid management positions in the hospitality sector.
Considering their workforce structure
Some employers have turned to contractor-based roles to manage rising employment costs and maintain a flexible workforce. However, businesses must comply with the complex tax and legal rules governing independent contractors.
For instance, when engaging sole traders or limited company contractors (where the off-payroll working rules apply), the engager must assess the contractor’s employment status for tax purposes. If a contractor is deemed to be working like an employee, they must be included on payroll and subject to PAYE and NICs – thereby reducing any potential employment tax savings.
Without expert advice, these rules are easily misapplied, leading to underpaid tax and NICs, and potential penalties. HMRC has increased scrutiny, with more frequent enquiries and compliance checks, particularly where intermediaries are used, e.g. agencies and umbrella companies.
Utilising the Employment Allowance
While employer NIC rates have increased and the threshold for liability has decreased, there was some relief for businesses through the expanded availability of the employment allowance from 6 April 2025.
Employment allowance sees eligible employers reduce their class 1 national insurance liability by up to £10,500. Before 2025, businesses could only claim if their liabilities were less than £100,000 the previous tax year. The removal of the £100,000 ceiling means more employers now qualify.
Eligible employers should ensure their payroll software is claiming the allowance, as manual intervention may
be required.
How AI can help hospitality businesses increase profitability
By Matt Taylor, CEO, Hospitality Solutions Group
Rising food and drink costs, higher wage bills, and shifting customer habits have combined to make profitability harder to protect. Many operators are working flat out just to stand still, which is why visibility, efficiency, and smart use of tools like AI are becoming more important than ever.
AI is no silver bullet, but it can be a powerful ally when used in the right places. For example:
- Automating repetitive tasks: invoice processing, supplier statement checks, payroll validations – freeing managers and finance teams from hours of manual work.
- Spotting patterns and anomalies: AI can highlight unusual supplier charges, or flag that wage costs are creeping above target before it becomes a bigger issue.
- Forecasting and planning: sales and labour forecasts can be sharpened with AI-driven insights, helping operators schedule staff more accurately and avoid costly over or under-staffing.
These areas free up time and reduce errors, which ultimately means leaders can focus on running their businesses rather than chasing paperwork.
Operators are seeing margins trimmed from both sides: costs going up and customers feeling the pinch. Ingredients, utilities, rent, and wages are all more expensive, while guest spending power is under pressure. Competition is fierce, and raising prices isn’t always possible without risking footfall.
This makes it essential to get a clear and regular view of profitability. Monthly management accounts are useful, but by the time they land on your desk the opportunity to act may have passed. The businesses that stay ahead are those who can track costs and revenues weekly, even daily, and make quick adjustments, and AI can be a powerful assistant in that regard.
That said, AI has its limits. It lacks the context that a manager or owner brings. No algorithm completely understands your brand, your guests, or your team morale. It can’t tell you that a rainy Saturday might actually bring in more delivery orders, or that cutting a member of staff might save money today but hurt service tomorrow. AI should support decision-making, not make the decisions for you. Think of it as an assistant that brings data to the table: the human insight still matters most.
The pressures facing hospitality are real, but so are the opportunities. With sharper reporting, the right use of AI, and clear visibility of margins, operators can take back control. The goal isn’t just to survive another tough year — it’s to use the tools now available to build stronger, more resilient businesses for the future.
Data security issues in the hospitality sector
By Rich Jackson, Data Protection Officer, Moore ClearComm
Data and privacy protection has become a core component of ethical business practice in the hospitality industry. Personal data is fundamental to the operational infrastructure of the sector. Hotels, restaurants, bars and events, such as festivals, collect and process vast amounts of personal and financial information.
Many hospitality businesses achieve competitive advantage through the collection and analysis of customer data, creating tailored experiences for both individuals and groups. Hotels, bars and restaurants can now optimise their market potential through directly engaging their target market, with data key to their success.
Because the sector relies on personal data to promote and generate bookings and sales, it incurs a high risk of cyber attacks or accidental data breaches. Several high-profile attacks have been reported in the past year, including:
- The Venice Film Festival confirmed in August 2025 that had been the target of a cyber attack, compromising the personal information of accredited attendees such as members of the press, industry professionals, and delegates of the festival. Attackers illegally accessed and copied documents stored on the festival’s internal servers. The leaked information included full names, phone numbers, email addresses, mailing addresses, and tax identification data.
- Hotel management platform, Otelier, suffered a data breach after threat actors breached its cloud storage to steal millions of guests’ personal information and access reservations for well-known hotel brands like Marriott, Hilton, and Hyatt. The breach apparently first occurred in July 2024, with continued access through to October, and was confirmed by Otelier in January 2025. This breach highlights the risk of supply chain vulnerabilities across the hospitality industry.
Hotels are currently being targeted by advanced, highly convincing, phishing campaigns. Staff receive email messages relating to common hospitality subjects, such as guest booking confirmations and partner notifications, and are asked to log into fake Expedia, Booking.com or Cloudbeds pages. The goal is to deploy infostealers and trojans in the hospitality businesses’ systems, with a view to gaining access to customers’ payment and personal data.
Hospitality businesses are key targets for bad actors because of the nature of the data they retain. They need to make all their employees aware of the threats, and the methods by which they may be tricked into allowing criminals access. Investing in employee education in data protection is key to managing the risks involved.
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