PESTEL analysis of the hospitality industry
This detailed ‘PESTEL analysis of the hospitality industry’ aims to examine some of the macro factors that have impacts on the global hospitality industry. There are different categories of business in this industry such as accommodation, food and beverage, travel and tourism, and entertainment.
The hospitality industry has witnessed a surge of substantial growth over the last decade. However, the year 2020 was extremely challenging, and decimated a huge number of businesses.
Political factors that may have influences on the hospitality industry
There are different ways with which governments can influence the hospitality industry. For instance, regulation of business, real estate development initiatives, taxation policies, and preservation of cultural and historic monuments are some of them (BHR, 2023).
Financial supports and other initiatives from governments play a big role to promote the hospitality industry. Sometimes, the support is necessary to keep the industry going.
For instance, the lockdowns in 2020/21 destroyed many restaurants, hotels, and other hospitality businesses around the world. Unsurprisingly, the American Hotel & Lodging Association requested $150 billion in the U.S. government relief.
Political instability is also an important factor. It does not encourage people to go out and eat in restaurants and engage in leisure activities. Likewise, staycations can also be affected by it badly.
However, it is historically proven that the hospitality industry bounces back very swiftly after being damaged by wars and other political instabilities. This has been evident in many countries around the world.
Economic factors that may have influences on the hospitality industry
Economic discussion is a key part in this PESTEL analysis of the hospitality industry. Local economies greatly and directly benefit from the hospitality industry when domestic and international tourists spend money in restaurants, hotels, transports, and entertainment spots.
Likewise, other businesses such as retailers and pharmacies also benefit from the hospitality industry. For example, souvenirs, snacks, and emergency medicine are some of the common items that many tourists buy a lot.
Hospitality an industry which offers opportunities to youngsters to step into their career ladder. It is also widely seen that a huge number of women joined this industry in the last decade globally.
This industry represents 9% of the UK employment, 6% of businesses, and 5% of GDP (UK Hospitality, 2023). It employed 3.2 million people directly and another 2.8 million people were engaged with it indirectly.
However, financial crisis impacts on the hospitality industry badly. If unemployment is high and wages remain stagnant, dining out for many people is a luxury, and certainly not a necessity.
Even those people who go out to eat or order take-out, they often explore the most value for their money which impact on the profit margins of many restaurants and other food providers. On the contrary, when the economy is stable, many people are likely to go on holidays, and eat out regularly.
Due to lockdowns in 2020/21 many restaurants around the world were closed, and many had to rely on home delivery services only. According to Moreno (2022) just one week of lockdown cost the UK alone $412 million in lost spending on snacks and non-alcoholic drinks.
Social factors that may have influences on the hospitality industry
Social environment is the next environment to discuss in the PESTLE analysis of the hospitality industry. Eating out in restaurants regularly is very common in some countries and cultures. Likewise, the same also goes with going on holidays abroad every year. Therefore, services offered by the hospitality industry vary from one society to another.
Consumer preference is changing rapidly. Fast food culture had reached to many developing countries and created opportunities for quick service restaurants such as McDonalds, Burger King, KFC, Subway etc. Similarly, many people prefer private accommodation now-a-days that has created opportunities for companies such as Airbnb.
However, some social factors impact on the hospitality industry badly. For instance, many people have negative perceptions, and therefore, do not seek employment opportunities in this industry, creating skill shortage that is currently crippling it.
Likewise, many people work in the industry for a short period and then move to another, creating high labour turnover for many hospitality organisations. This is particularly true for fast food restaurants.
Technological factors that may have influences on the hospitality industry
Technology has greatly benefitted the hospitality industry. Customers can now book their holidays and restaurant tables online. Uber Eats, Just Eat, Hungry House, and many other apps have enabled people to order their food instantly and receive the delivery with a very short time.
Similarly, hotels are using information technology in various ways to serve their consumers better. They have automated many tasks that used to be done manually. Automation helps them make processes more efficient and reduce costs. It can also be used to improve customer service, as it can help to free up staff to deliver a more personalised experience.
Mobile apps are also becoming increasingly important in the hospitality industry. Apps allow customers to access information about their stay and make bookings on the go. This has made the room booking, and food ordering processes more convenient and can also help to increase customer satisfaction.
Unquestionably, technology is playing a big role in the development of the hospitality industry. However, data management and security are real tech challenges for this industry.
Environmental factors that may have influences on the hospitality industry
Environmental factors have a major impact on the hospitality industry. Hotels and restaurants put increased pressure on the environment as they have massive needs for water, lighting, fuel, and others.
Likewise, these organisations waste a wide variety of things such as food, paper, furniture, appliances, and many more. Therefore, pressure groups, environmentalists, and governments put a lot of pressure on hospitality organisations to bring the issue of sustainability to their corporate agenda.
Legal factors that may have influences on the hospitality industry
Legal environment is the last topic of discussion in the PESTEL analysis of the hospitality industry. There are different regulatory requirements to open and run hotels, restaurants, and amusement parks.
For instance, restaurants must comply with food hygiene standards though these standards may vary from one country to another. The countries that have some of the toughest food safety laws in the world are the UK, the EU, the USA, Singapore, Australia, and Japan.
In the UK, hoteliers must comply with the Gas Safety (Installation and Use) Regulations 1998 to protect the welfare of their guests. Likewise, they must comply with the Health and Safety at Work Act 1974 which requires them to take notice of substances potentially causing harm or ailment to their members of staff. They must also protect the identifying information of their guests.
Summary of the PESTEL analysis of the hospitality industry
Hospitality is one of the largest industries in the world. It is very diverse, as it encompasses a wide range of activities and organisations, from hotels and resorts to restaurants and bars.
This industry employs millions of people around the world and is a major contributor to the global economy. However, it is also highly competitive, and requires a lot of work being done in unsocial working hours.
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Last update: 03 March 2023
BHR (2023) Hospitality, tourism, and politics, available at: https://www.bu.edu/bhr/2012/09/01/hospitality-tourism-and-politics/ (accessed 03 March 2023)
Moreno, N. (2022) Lockdown is eating away at the food takeaway and restaurant industry, available at: https://www.kantar.com/inspiration/fmcg/lockdown-is-eating-away-food-takeaway-and-restaurant-industry (accessed 21 April 2022)
UK Hospitality (2023) Industry focus, available at: https://www.ukhospitality.org.uk/page/UKHmenuforchange (accessed 03 March 2023)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.