Boom time for tourism - but hoteliers feel the pinch

The rising popularity of the 'staycation' has resulted in bumper numbers of holidaymakers flocking to East Anglia in recent years.

But despite this, many hoteliers are feeling the pinch, with issues ranging from the VAT rise to increasing competition eating away at profits, and a string have gone into administration in recent months.

They include Laccone Ltd, the company behind the nine-bed luxury Broad House Hotel in Wroxham, which called in administrators Baker Tilly in December after breaching repayments of a previous �3.8m debt.

Baker Tilly earlier this month entered 'exclusive negotiations' with a potential buyer for the hotel.

The company has also said it remains confident of securing a buyer or buyers for six hotels and inns operated by Norfolk-based Maypole Group, which collapsed in October.


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Baker Tilly continues to operate Maypole's premises, which include the Wayford Bridge Hotel in Stalham, the Bridge Inn at Acle and the Angel Hotel in Lavenham, Suffolk.

Another victim in recent times has been Suffolk-based hotel and pub chain Elizabeth Hotels, which called in administrators KPMG in December 2009 after running up �1.5m VAT, wage and National Insurance liabilities.

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All but two of the firm's 14 hotels and 13 pubs have since been sold, with the Cliff Hotel in Gorleston sold to commercial investor Johnny Ioannou in recent weeks.

While the exact events leading up to the collapse of the companies remain unclear, industry experts and insiders say hoteliers are facing an array of challenges.

Chris Scargill, tourism and leisure partner at Larking Gowen chartered accountants and business advisers, said that while there was a 'buoyant and positive feel' in the hotels sector, increasing trade had been counteracted by rising costs.

He said: 'Turnover does not mean profit, and businesses have seen increased costs in electricity and heating and rates, not to mention tax duties on beverages and general food costs too.

'Hoteliers have also been impacted by a reduction in secondary spend, with more visitors sticking to a budget.'

Given this month's VAT increase, to 20pc, Mr Scargill said the impact was that businesses were 'having to work harder' to make a profit, and may not have been able to pass on the VAT increase in their prices for fear of becoming uncompetitive.

But he said many hoteliers were successfully meeting that challenge, an example being Norwich-based Arlington Hotel Group, which took steps to up its marketing game when the recession took hold, with bookings up in four of its five premises last year, including the George Hotel in Norwich and North Walsham's Scarborough Hill Hotel.

Mr Scargill said while hotels were generally seasonal businesses, they also had to maintain a 'minimum quota' of staff even at quiet times, and there was a risk of over-investment – and inability to obtain 'sufficient returns on investment'.

Mr Scargill's comments were reflected by Devin Grosse, general manager at Holiday Inn Norwich North, near Norwich International airport, a spokesman for the Norwich Area Hoteliers Association, who said the increase in VAT was having 'quite a negative impact' on hoteliers.

British hotels are liable for the full 20pc VAT, while in many European countries, such as France and Germany, the rate hoteliers pay is far lower.

Mr Grosse added: 'There is a ceiling to what hotels can charge. While you can increase prices in accordance with VAT for commercial guests, hotels are having to swallow that VAT rise for leisure guests as they are only prepared to pay to a certain level.'

He added: 'Profitability is becoming tighter and tighter.

'It is not one thing, it is a lot of things eating away at profits. Hotels were once seen as a great place for banks to invest money, but that is not the case any more.

'There is a risk that banks may look at their investments in hotels and look to restructure their lending, as they do with many businesses, and potentially increase interest.

'Some hotels may be very profitable but with increasing lending costs it can become very difficult.'

But Mr Grosse said hotels in East Anglia appeared to be holding up 'a little better' than some other areas across the UK, and said fears of a surplus of hotel rooms harming occupancy rates in Norwich had subsided after a number of planned hotels were shelved.

He said: 'It is not a gloomy outlook, it is just time for everyone to tighten their belts a little, and focus on the quality and value that we need to offer as a county to keep people coming back.'

Research by accountants and business advisers PKF shows an increase in occupancy in October 2010 from the same month the previous year, up 3.7pc to 73.8pc, while in the Norwich area levels leapt 13.9pc to 76.1pc.

However, average daily room rates were down slightly to �64.92, with the figures 'still playing catch-up' on 2009.

And PKF senior partner in East Anglia, Michael Muskett, warned independent hoteliers were facing increased competition with national chains.

He said: 'In the lower end of the market, the impact of Premier Inns and Travelodges is creeping up every- where.

'They are offering prices of �19-plus per night and that is really hitting the lower end of the market. They seem to be opening every where, and some seem full every night.'

Looking ahead to the rest of 2011, while many hoteliers expect no let-up in the squeeze on profits, expectations are high of another bumper holiday season in the region.

Bernard Ducker, general manager at the Best Western Knights Hill Hotel in King's Lynn, said in each case of a hotel going into administration there were probably particular reasons for the collapse, and that there was 'no cause for alarm'.

He added: 'I am relatively optimistic.

'Bookings look good and we are looking at another 'staycation' year.'

Clare Millar, head of tourism body Visit Norwich, said there had been a 'remarkable level' of investment in hotels in the city, and said reports from hoteliers had been 'extremely positive', boosted by the 'staycation' trend.

Despite hotels 'feeling the pinch' from rising costs, Ms Millar said with the London Olympics in 2012, royal wedding this year and the Diamond Jubilee approaching, the outlook was positive, adding: 'We have a lot to be optimistic about going forward.'

Calling all tourism businesses! The EDP, in partnership with accountants and business advisers Larking Gowen, is finding out what makes the �2.6bn sector tick.

We want you to tell us – whether you are in boat hire, the pub trade or holiday parks – and in return we will share the results with you.

Through the widest-ranging tourism business survey in the county we want to help you understand the challenges and opportunities that are out there.

Will you be affected by the VAT increase? Will public sector cuts impact on your business? Are you ready to make the most of events like the 2012 London Olympics and the Tour of Britain?

Those fully completing the survey will be invited to a breakfast launch which will include a presentation and analysis of the survey's findings.

We will also be able to send the findings direct to your inbox post-launch.

The survey takes just under 20 minutes to complete, a small investment of your time for the wider good of the industry.

Any details you submit will remain confidential. You have until Saturday to take part.

Go to www.edp24.co.uk/tourismsurvey or email elaine.maslin@archant.co.uk for more information.

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