Insights from Michael Grove, CEO of HotStats — as shared in conversation with HOSPA CEO Jane Pendlebury.
Known for pairing candour with data-driven clarity, the HotStats CEO recently unpacked the latest profitability trends shaping the UK and European markets — and the results were anything but comforting.
“It’s not that sweet at the moment,” he began with a wry smile.
Across much of Europe, the story is increasingly uneven — and in the UK, the numbers paint a sobering picture. In the UK, flat revenues and rising labour costs are squeezing margins to their thinnest levels in years. Drawing from HotStats’ proprietary P&L data gathered from nearly a thousand hotels in the UK, Grove offered a sharp, factual look at where the pressure points lie — and what operators can still control.
Europe’s Two-Speed Recovery
At the continental level, Grove’s charts revealed a striking divide between regions.
“Eastern Europe has seen further success this year — an 11% increase in GOPPAR,” he noted “Southern Europe is up 4%, Western Europe 3%. But Northern Europe — which for us is mainly the UK and Ireland — is 3% down.”
The UK now sits third from the bottom among European markets for profitability. Revenue remains mostly flat — down just 0.5% — but profitability has dropped by 4%, underscoring how rising costs are eroding even stable income streams.
Figure 1: Across Europe, profitability trends are diverging — and the UK remains one of the few regions still in decline.
The Labour Cost Crunch
The central culprit, according to Grove, is labor.
Since the April 2025 changes to National Living Wage and National Insurance, payroll costs have risen 4% to 4.3%, effectively wiping out any gains in revenue.
“Revenues are flat, and labour costs have increased by that amount,” Grove explained. “That’s almost entirely why profitability is down 4.2% year-to-date.”
By July, a strong summer gave temporary relief — August even posted +0.5% TrevPAR growth — but the uptick barely dented the annual trend.
Figure 2 : Flat revenues, steadily rising labour costs, and the resulting squeeze on profit margins.
Cardiff on Top, London Still Leads
Zooming into city-level data, Grove highlighted Cardiff as one of the year’s rare bright spots.
“My hometown Cardiff has seen huge events over the past seven or eight months,” he said proudly.
Oasis concerts, rugby finals, and packed stadium weekends gave the Welsh capital a temporary profit lift — proof, Grove argued later, of how event-driven demand still moves the market.
London, however, continues to define the nation’s overall profitability. Despite food and beverage margins shrinking to just 20%, room profitability remains strong at 75% — roughly ten points higher than the provinces.
“London’s high rooms profit is propping up weaker food and beverage performance,” he said — a sign that the capital’s recovery still depends on premium room rates rather than ancillary spend.
Food & Beverage: The Long Slide
If there’s one metric that continues to trouble Grove, it’s food and beverage (F&B).
Across provincial hotels, F&B margins have dropped to 27.7%, nearly 10 percentage points below pre-COVID levels.
“Food and beverage continues to be a challenge,” he observed, “although the provinces are holding up better than London.”
While the sector has trimmed costs and adapted menus, structural profitability remains thin — a reminder that guests are spending differently, even as occupancy stabilizes.
The Real Cost Divide: Labour, Not Expenses
Grove’s slides made one point unmistakably clear: this year’s profit erosion isn’t about utilities or expenses.
“The issue hasn’t really been around cost of sales or booking costs,” he said. “The real challenge has been labour — and that’s where we need to hone our attention.”
In fact, F&B was least impacted by wage increases, contrary to expectations.
The biggest payroll spikes came from “Other departments” — spas, maintenance, and health clubs — where labour intensity is high but revenues lag.
“The 1.2-point drop in GOP margin is almost directly linked to the 1.4-point rise in labour margin,” Grove explained. “That’s the story of 2025.”
Golf Resorts Win, Focused Service Hotels Lose
Performance by hotel type underscored the widening gap between leisure and limited-service models.
“Golf resorts continue to thrive — up 7.6% in profit per available room,” said Grove.
By contrast, focused-service hotels, which rely heavily on labour efficiency and high occupancy, fell 6.2%. Their lean cost structures leave little room to maneuver in a high-inflation, low-demand environment.
Segments Under Pressure
When dissecting brand tiers, Grove cautioned against lumping “luxury” into one category.
“Ultra-luxury and luxury perform very differently,” he said.
The ultra-luxury segment, heavily concentrated in London, continues to surprise with strong top-line resilience — even as costs surge.
Meanwhile, the upper midscale segment has dropped 5.7%, reflecting the squeeze on middle-tier properties caught between value-driven leisure travelers and cost-conscious corporates.
Flat Revenues, Growing Gaps
Since January, total revenue (TRevPAR) has been essentially flat, while labour costs have climbed steadily month after month.
Utility savings and reduced booking expenses have only partially offset these increases.
“We would have seen further erosion in margins if not for lower energy costs,” Grove acknowledged, “but labour remains the defining pressure.”
Figure 3 : Year-on-year results reveal an uneven market — a handful of bright spots amid widespread margin pressure.
The Data-Driven Mindset
Throughout his presentation, Grove returned to one core message: profitability depends on precision data, not assumptions.
With nearly 1,000 UK hotels contributing full P&L data to HotStats, the analysis offers one of the most objective pictures of hotel performance in the market.
“It’s an aggregated view of the market — not sentiment, but fact,” Grove emphasized early in his talk. “And the facts are showing a flat revenue picture and rising costs.”
ProfitFinder: Turning Insight into Action
Before closing, Grove briefly unveiled HotStats’ new analytics tool — ProfitFinder — which automates what many operators have long done manually: identify where profitability gaps lie within the P&L.
“Instead of just delivering you the data, it tells you where to look and what it’s worth,” he explained. “It quantifies the value on the table.”
Launched recently, the platform has already been adopted by several major operators, offering a more proactive way to manage profitability rather than react to it.
Final Word: The Profitability Paradox
As Grove summed it up: energy costs are easing, but not enough; labour is tightening, and revenues are stalling.
The good news?
Markets are stabilizing above 2019 levels, and the tools now exist to measure and manage profit more precisely than ever before.
“It’s not all doom and gloom,” Grove said, flashing one last chart showing Cardiff at the top. “But we’ve got to face the reality of where the pressures are coming from — and that means understanding our P&L better than ever.”
Watch the full session on the HOSPA website: https://www.hospa.org/hospawebinarsandevents
If you want to explore how HotStats can help you benchmark against the right competitors, uncover hidden profit opportunities, and stay balanced on the tightrope, get in touch with us today: askus@hotstats.com.