The German accommodation and food services sector has yet to recover fully from the impacts of the COVID-19 pandemic. Despite a strong rebound in many industries, employment in hospitality remains below the pre-pandemic peak.
Businesses in the sector are grappling with a combination of rapidly rising costs, weak household consumption, and policy shifts that have added further financial pressure. A key factor contributing to the slow recovery is the cautious spending behavior of German consumers, who are saving at higher rates than before the pandemic. Additionally, the recent reversal of the value-added tax (VAT) reduction that was introduced during the pandemic has placed an added burden on businesses already struggling to remain competitive.
Wage Pressures and Labor Shortages
One of the major challenges facing the hospitality sector are rapidly rising labor costs. With an ongoing shortage of workers, many businesses have had to raise wages to attract and retain staff. The German labor market has seen significant upward pressure on wages across various industries, especially in the blue-collar space, making it even harder for restaurants, hotels, and cafes to compete for workers. Wages in the hospitality sector have increased by about 30% since 2020, compared to the 20% increase for the private sector as a whole. Keep in mind, the hospitality industry has famously low profit margins. Balancing those with rapidly increasing labor costs can be lethal for many small- and medium-size businesses.
At the same time, hospitality work has become less attractive to potential employees, a problem that is exacerbated by median wages well below that of other industries (see this Stepstone analysis on salaries).
Pandemic-induced disruptions led many workers to seek employment in more stable sectors with better pay and working conditions. This has intensified the labor shortfall and increased hiring costs, further limiting the ability of food and accommodation establishments to expand operations or return to pre-pandemic employment levels.
Additional Cost Pressures: Energy Prices and Rent
Beyond wage increases, the food and accommodation sector is also struggling with rising rents and energy costs. Wholesale energy prices in Germany have surged in recent years, driven by geopolitical factors, supply chain disruptions, and the country’s transition to renewable energy. As a result, electricity prices increased by more than 25% for consumers. Restaurants, hotels, and other hospitality businesses rely heavily on energy for heating, cooling, and food preparation, making these cost increases a major burden.
Similarly, commercial rents have been climbing at a rapid pace, particularly in urban centers where hospitality businesses are concentrated. As a result, many businesses are facing higher operational costs while dealing with lower customer traffic and declining revenues.
Weak consumers are eating out less often
Another key factor hindering the sector’s recovery is weak domestic consumption. German households have remained cautious with their spending, as economic uncertainty and inflationary pressures continue to shape consumer behavior. The country’s savings rate remains above pre-pandemic levels, reflecting a reluctance to engage in discretionary spending, particularly on dining out.
Inflation has eroded purchasing power, leading consumers to cut back on non-essential expenses. Restaurants, bars, and hotels are particularly vulnerable to this trend, as they rely heavily on consumer confidence and disposable income. Even as wages have increased, inflation-adjusted earnings have barely kept pace, making it more challenging for many Germans to justify spending on leisure activities. This shift in behavior has resulted in sluggish demand, putting further strain on the industry.
Flip-flopping policy on the VAT
Policy changes have also weighed on the sector. In July 2020, Germany introduced temporary VAT reductions to support the hospitality industry during the pandemic with the VAT on food served in restaurants (excluding beverages) lowered from 19% to 7%. This measure was initially intended to last until the end of 2020 but was later extended to December 2023 to provide continued relief for struggling businesses.
However, starting January 1, 2024, the VAT rate reverted to 19%, making dining out more expensive for consumers and reducing demand for hospitality services. The decline in consumer spending has negatively affected hospitality businesses, leading to lower revenues. While businesses could theoretically attempt to absorb the higher VAT costs to keep prices stable, many have already been struggling with tight profit margins due to rising wages, energy costs, and rent. Ultimately, the VAT increase added another barrier to recovery for the sector.
The new German government has announced to reduce the VAT rate back to 7% for dining out. While this will provide a well-needed boost to struggling businesses, the policy will only come into effect by January 1st, 2026.
The employment outlook in the sector remains bleak for now
For all the reasons mentioned above, the employment outlook in the sector remains somewhat bleak for now. According to a survey from the Association of German Chambers of Industry and Commerce (DIHK), the “balance of employment plans” in the sector has steadily deteriorated over the last two years. It now stands at a historically low point approaching levels not seen since the Financial Crisis (and disregarding the pandemic itself), indicating further layoffs in the sector.
Other cost pressures coming from rising wages, high energy costs, and rising global food prices will not fade any time soon. However, the VAT reduction that the German government is planning will reduce the burden that businesses are currently facing. While one should not expect an immediate recovery, the outlook for the sector might improve throughout the second half of 2025, especially if the German economy finally starts growing again.
What does that mean for recruiters?
The combination of wage pressures, weak consumer spending, and policy reversals has created a tough environment for Germany’s food and accommodation sector. Employment has not recovered, and the outlook has been rather bleak, until now.
However, two big factors will most likely lead to a modest recovery in the German hospitality sector. First, the government’s plan to reduce the VAT back to 7% will give struggling businesses a well-needed boost, if only by next year.
Second, Germany’s new government is ramping up spending on defense and infrastructure with a massive fiscal package, which is projected to stimulate economic growth in the coming years. If that gets households to spend some of their disposable income and eat out more often again, the food sector will be rejuvenated, finally.
For recruiters, the stagnant sector currently poses some challenges, as labor shortages being relatively high despite the sector’s struggles. Employers need to offer competitive compensation to retain and attract employees. Flexible working arrangements can be a crucial component of this. Part-time work and flexible scheduling might help attract workers who have young children or other care obligations, for example. Last but not least, recruiters might want to target workers from other struggling sectors by emphasizing job stability and potential career growth.
Explanation of the index:
The index focuses on three pillars driving labour shortages: demand, where high-growth occupations may outpace skill provision; supply, highlighting replacement needs as workers retire or change careers; and imbalances, identifying mismatches between job qualifications and requirements.
