Hospitality Firms Ride Great Reopening Boom, Margin Pressures Loom

The great reopening continues on Main Street, as the masses congregate to eat, drink, be merry and relax.

That renaissance spells opportunity for the smaller firms in the leisure and hospitality verticals, having come through the darkest days of the pandemic, when everything was shuttered.

Indeed, the latest government data show that payrolls surged in May in those sectors. The Bureau of Labor Statistics (BLS) reported leisure and hospitality firms were active in May, adding 84,000 positions, more than 21% of the 390,000 positions reported for the month.

Read more: Leisure, Hospitality Post Job Gains as Unemployment Holds Steady

The findings underscore PYMNTS research, through its series on the state of Main Street, where service firms, and restaurants especially, have been recovering swiftly.

See more: Main Street Restaurants, Fitness, Personal Services Rebound From Pandemic Lows

To get a sense of the scope of that rebound, the PYMNTS/Melio data showed that, year over year, the index “scores” for restaurants were up 29%, and, in general, personal services providers were up 17%.

But it’s important to note a few things. Although growth has been the hallmark of these sectors, depending as they are on consumer spending, there are signs the recovery might be tenuous.

Inflation remains a headwind, and there’s a tipping point that should give companies pause. Job gains, along with wage gains (now running at more than 5% annually) mean that operating costs are higher for many of these companies.

Read more: Wage, Job Gains Hint at Inflation Ahead for Retailers

There’s only so much these, or really any, companies can do to blunt the impact of those operating pressures. One way is to pass along those pressures to the end consumer in the form of price increases. We’ve seen in recent surveys that 64% of Main Street respondents expect to see solid sales growth in the present year — and yet 50% say that economic uncertainty could hurt performance. Those responses speak volumes about some of the headwinds that are gathering.

The signs were there at the very beginning of this year that Main Street players were, and have been, cognizant of the fact that there are several levers to pull elsewhere. Those levers can improve cash flow and reduce manual tasks that add administrative burdens and costs to everyday activities.

At the beginning of the year, a survey found that 51% of Main Street businesses were “very” or “extremely” likely to buy or upgrade equipment in the next six months, which is just about right now. In addition, more than one-third of these businesses planned to increase wages for their staff (which is what has been happening). Upgrades were in the plans for 55% of those in food, entertainment and accommodation; 55% of those in personal and consumer services.

See more: 30% of Main Street Businesses Plan to Add Digital Wallet Payments

The tightrope walk between inflation, top-line growth, operating income and tech-driven efficiencies continues.