Research reveals decreased profitability from almost 50% of tourism businesses in Scotland despite increased demand

STA Chief Executive Marc Crothall

THE Scottish Tourism Alliance, the overarching representative body for Scotland’s tourism and hospitality industry has today announced the results of the latest quarterly industry survey at its Autumn Annual Conference at the EICC in Edinburgh, which welcomed more than 400 business leaders from all parts of the sector.

The organisation partnered leading research company, 56 Degree Insight to capture a snapshot picture of how the recent summer season for tourism and hospitality businesses has compared to previous years and the sector’s expectations for the future.

More than 218 tourism businesses took part in the ‘How’s Business?’ STA Autumn Industry Survey, which ran from 6th to 20th October with responses coming across Scotland including 124 self-catering businesses, 48 serviced accommodation providers and 65 non-accommodation businesses.  In addition, the recent Scottish Licensed Trade Association survey of pubs and restaurants provides some equivalent information from 340 pubs and restaurants.

Scotland’s tourism and hospitality sector is showing promising signs of recovery concerning key overseas markets, but rising cost pressures and a significant drop in domestic visitors means that businesses are struggling to make a profit.

The survey found that there’s been an increase in visitors to Scotland, particularly from visitors from Europe and North America, but when it comes to the bottom line, almost half of respondents (48%) are reporting decreased profits. In most cases, they had experienced a year-on-year decline of 10% or more.

Around 9 out of 10 tourism and hospitality businesses reported experiencing higher energy and supplier costs, while staffing costs has increased for 69% of respondents. As a result, this is continuing to have a knock-on impact on investment in building maintenance and improvements, marketing and promotion and staff training and development.

Looking forward, levels of business confidence remain fairly low, particularly among smaller businesses and within the serviced accommodation sector. 

A similar picture was also found in research recently conducted by the Scottish Licensed Trade Association, which reported in September that 57% of outlets have been experiencing a year-on-year decline in bottom line performance, with 67% of survey respondents expecting the Scottish economy to decline in the next 18 months.

Key Findings

  • Compared to 2022, tourism businesses are reporting a small net increase in their customer numbers this year. Between 2022 to 2023, the sector has experienced increases from key overseas markets (Europe +30%, North America +29%).
  • Concerning the key domestic visitor market, respondents reported decreased volumes in visitors from Scotland (-16%) and other parts of the UK (-20%).
  • When it comes to the bottom line, almost half of them (48%) are reporting decreased profits, and in most cases, there is a year-on-year decline of 10% or more. 
  • Businesses have cited a number of macro factors which are impacting on the choices being made by their domestic consumers – 83% believe that higher cost of living is a barrier to holiday taking, 77% cite inflation as a key factor, and 71% mention higher energy and fuel costs.
  • 92% of tourism and hospitality businesses that responded are experiencing higher energy costs than last year, 90% have higher supplier costs to deal with, whilst staffing costs have increased for 69% of them.
  • In addition, consumers are postponing trip booking decisions, meaning these shortened lead times are adding to business uncertainty.
  • This has resulted in cutbacks in business investment in a number of key areas such as building maintenance and improvements, marketing and promotion. Given that visitors regularly cite the key role played by our people when it comes to the Scottish tourism product, it is concerning that only around one in five have increased their spend on staff training and development, and that businesses believe this is unlikely to change next year.
  • Looking forward, levels of business confidence remain fairly low – especially for the next 3 months – and particularly amongst smaller businesses and within the serviced accommodation sector. Half of accommodation businesses are reporting fewer forward bookings than they did at this time last year (50%). 
  • For businesses, the key challenges for next year continue to relate to the economic situation – especially energy costs (81%).  Additionally, amongst self-catering businesses, the second most cited challenge they are facing is the implementation of the Short-term Lets Licensing Scheme (76% mentioned this).

Marc Crothall MBE, STA Chief Executive, said:

“The growth of the international inbound market is very welcome news and significantly important for Scotland’s tourism industry; this will be critical for our long term, sustainable recovery. Scotland has also outperformed the rest of the UK in terms of growth in volume and value of inbound tourism in Q1 and Q2 of 2023 and we hope this will continue to be an upward trend.

However, the UK domestic market accounts for around 65% of tourism in Scotland and our industry is dependent on this tourism spend. The decline in domestic visitors, both from Scotland itself and other parts of the UK is most concerning.  With factors such as the higher cost of living, inflation and increased energy and fuel costs influencing consumer choices and holiday decisions, we can no longer rely on our domestic market as a key driver for Scottish tourism.”

The reality is that healthy trading is all about the bottom-line performance of the business; while revenue may be strong for many businesses, the key to commercial success lies in the ability of that business to convert profit into sustainable recovery and growth.”

“The Scottish Government can support our businesses through business rate relief which will go some way to improving profitably and inward investment, particularly in relation to recruitment, staff training and development.  Many businesses across the sector continue to operate at a reduced capacity, simply because they can’t fill vacancies. Our people play a vital role in showcasing our unique Scottish tourism product and delivering the experiences which we’re famous for the world over.  

“The STA’s research findings are very clear that Scotland’s reputation as an attractive and competitively healthy global destination is most definitely at stake unless governments exercise more financial levers to support the sector.”

Jim Eccleston, Managing Partner of 56 Degree Insight, said: 
“There’s been some good news for the Scottish tourism industry in 2023 – particularly some strong recovery in the North American and key European inbound markets. However, we also need to recognise that the bedrock of Scottish tourism has always been our domestic markets, and tourism businesses are reporting declines in these markets this year compared to a year ago.”

“With living costs remaining high, more and more of us have been protecting our holiday budgets for overseas trips seeking the sun. The overall result has been a negative impact on the bottom line for many businesses, particularly in the serviced accommodation sector and in pubs and restaurants.

“The immediate future remains bleak for many businesses who see these trends continuing into 2024, although welcoming overseas visitors back to Scotland has given the sector a renewed feeling of optimism concerning the inbound tourism market.”

The full survey report can now be accessed via the link here.

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