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Pub sector stumbles down the road to recovery

As the UK hospitality industry struggles to get back on its feet in the fallout from Covid-19, pubs and brewers at risk of financial ruin are urging the government to give a clear date for when pubs can reopen.

17th Jun 2020
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The government’s reluctance to ease its two metre social distancing rule, preferring to launch a review that may take weeks, has sparked major concerns.

The British Beer & Pub Association said this week that a quick decision was needed to give the pubs and brewing industry time to prepare for reopening on 4 July. It was the date initially proposed by the government in its roadmap for economic recovery.

Lack of clarity

“Our 47,000 pubs and 2,000 brewers are now in urgent need of a definitive date on when pubs can reopen,” said Emma McClarkin, the association’s CEO. “We have consistently and clearly asked government for at least three weeks’ notice to ensure our pubs can bring staff out of furlough, prepare and reconfigure themselves to adhere to safety guidelines, and ensure they have fresh draught beer ready to serve customers.”

The BBPA said the government’s lack of clarity had forced many beer and pub industry businesses to gamble and start getting ready – brewing cask and keg beer takes a minimum of three weeks. But the “overwhelming majority” of them couldn’t afford to do so and further delay would mean thousands of Britain’s pubs wouldn’t be ready in time.

Simon Emeny, CEO of pubs and hotels business Fuller’s, said without definitive government confirmation on a reopening date “will delay investment, delay bringing our staff back to work to help plan our reopening, increase the costs for government and inevitably will mean that our pubs will not be able to reopen”.

Relax the two metre rule

Key to UK pubs reopening is relaxation of the two metre social distancing lockdown rule under which only a third of them can operate. The BBPA is pressing the government to adopt the World Health Organisation’s one metre guideline, which would allow 75% of pubs to reopen.

The devastating impact of the UK lockdown on breweries and pubs was writ large in first quarter financial results revealed by the trade association. Overall sales of beer were down 7.2% on Q1 2019 to 1.5bn pints – the lowest level for 20 years. Pubs saw a 16.4% drop in beer sales to a record low 668 million pints, caused by the sudden closure of pubs and two weeks of zero sales.

Big brewers are better equipped to manage the shockwaves. Since pubs closed in March, Greene King has provided £11m in rent concessions as well as investing around £4m in support for its 1,050 UK pubs. Every pub has received a £250 Personal Protective Equipment (PPE) kit for reopening, including face masks, visors, gloves, and hand sanitiser gel and been offered £120 of Covid-19 signs for pub gardens and interiors.

But a June survey of 242 breweries by the Society of Independent Brewers (SIBA) paints a gloomy picture for smaller operators as they plan their financial survival. It revealed that 84% expected the pandemic and social distancing measures to have a lasting negative impact on their business.

Independent brewers hit hardest by crisis

Nine out of 10 brewers claimed the large multinational brewers stand to increase their market share as a result of Covid-19, flagging up concerns such as competition on price, soft loans tying down publicans to mass market beer and worries about buying choices of pubs.

SIBA, which represents around 750 independent brewers, is calling for the government to slash beer duty and extend business rates grants and support to breweries.

Moor Beer brewery in Bristol is one of those hard hit by the crisis. When the government shut down pubs, it immediately cut off 90% of the company’s trade to hundreds of pubs and restaurants across the UK, says owner Justin Hawke. Sales at the brewer’s two retail sites stopped and exports were halted.

For a company experiencing good growth, the impacts of the pandemic have dealt a bitter blow to business, Hawke tells AccountingWEB. He’s critical of the government’s handling of the crisis and the flexible furlough scheme. Like other businesses in the hospitality sector, Moor Beer has had to adapt quickly. Some pubs still owe him money from before lockdown.

AccountingWEB is told by industry insiders that some brewers may take time to open – or may not reopen at all – in a UK market already at saturation point with breweries. Those selling solely to pubs with no other route to market are likely to go under first.

Hawke is “not optimistic” about the future of his business and the pubs and brewing sector at large, though a push on direct to consumer sales and an increase in home deliveries has generated some income. But he doesn’t expect export levels, or “decent trade” to UK pubs, to return to normal for at least 12 months. He says the company will have to restructure to survive the economic upheaval.

Pubs aren’t ‘economically viable’

Also suffering are companies in the brewing industry’s supply chain such as producers of malted barley, for whom business with big breweries has fallen away but production costs remain when plants are geared to work at a certain rate. There’s a knock-on effect for grain traders and farmers involved in this year’s barley production.

According to the SIBA survey, half of brewers believe most pubs aren’t economically viable with social distancing at all. Hawke is among them, saying that many pubs simply won’t reopen or will go out of business if the government doesn’t relax the rules.

10% of Cornish pubs will go out of business

Paul Miller, managing director of Cornish Accounting, which works with around 40 pubs, hotels and restaurants across Cornwall, estimates that up to 10% of them may go out of business by next spring – even if social distancing rules are relaxed. He says Covid-19 has “magnified” the financial problems for unprofitable businesses or those people who took over a pub as a way of life. Rent deferrals have helped but smaller pubs may still decide not to reopen.

Miller says pubs and hospitality businesses will be relying on summer trade for a “short burst of cash in the till” to get through the winter but once the initial “euphoria” of people visiting pubs again dies down, some “will not have the cash reserves to see them through”.

Economic indicators suggest that when the government’s job retention scheme finishes there may be mass redundancies. “People who know their figures, their costs base and margins will be the ones who will survive,” said Miller.

Cornish Accounting has been advising clients to go through their profit and loss accounts and evaluate their cash-burn rate, “what can they cut out, what can they reduce, doing cashflows and forecasts”. He says shutdown of businesses due to Covid-19 has “enabled people to think ‘Is there a slicker way of doing things?”.

‘Batten down the hatches’

Julie Palmer, partner at business recovery experts Begbies Traynor, says that while it’s tough for pubs and brewers to make projections, those willing and able to change tack can boost their survival chances.  Coronavirus Business Interruption Loan Scheme (CBILS) and VAT deferrals were helping businesses bounce back but repaying them would mean those in sector “playing catch up next spring”.

Palmer advised pubs and breweries to explore methods of diversification and good cost controls, suggesting they should “batten down the hatches, stem spending and look at options to diversify cash flow”.

“Pivoting to a new business model” would require businesses to be imaginative and “offer something a bit more cutting edge… flexibility and adaptability is key.”

Replies (6)

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By Eugene Blaine
18th Jun 2020 10:36

This simply requires control, structure and a willingness to make things happen. I noticed that the Irish Government have just published the following guidelines to the sector.

Tourism agency Fáilte Ireland has finalised and published guidelines around the reopening of pubs serving food, that will see customers restricted to spending a maximum of one hour and 45 minutes in a premises at any one time.

An additional 15 minutes will have to be put aside by the business for cleaning between bookings, the guidelines say, and to allow customers leave without mixing with the next group coming in.

Pubs, gastro pubs and bars will also have to collect contact information for the lead person in a party, in order to facilitate contact tracing in the event of a positive case of Covid-19 later being identified.

Where two-metre physical distancing is not possible, the guidelines say businesses are now allowed to implement a one-metre rule in controlled environments, once other risk mitigation requirements have been met.

"These guidelines are intended to provide clarity to businesses so that they can reopen safely on June 29th," Paul Kelly, CEO of Fáilte Ireland, said.

"I would like to thank my team and officials from the Department of Transport, Tourism and Sport who have been working tirelessly on ensuring these guidelines are practical while adhering to public health advice."

For the full article: https://www.rte.ie/news/business/2020/0617/1147884-failte-ireland-hpsc/

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Nefertiti
By Nefertiti
18th Jun 2020 11:27

Lets be honest, the Lockdown and social distancing rules are just a joke. The government imposed these rules upon us whilst the following officials broke them, at will, because they know it is all lies:

1. Mr. Dominic Cummings
2. Professor Neil Ferguson
3. Dr. Catherine Calderwood
4. Mr. Robert Jenrick
5. Mr. Stephen Kinnock

In addition to this, we have had a hundred thousand protestors demonstrating all over London and other parts of the country over BLM - even they know that Lockdown and Social Distancing rules are based on fake research.

BoJo knows that the World Health Organization recommendation is only 1 meter but is refusing to reduce our ridiculous 2 meter rules knowing fully well that it will shut down hundreds of thousands of small businesses and pubs. We are all being prepared for the amazing "vaccine" which will be rushed through in a few months (usually it takes years of testing on animals and then humans before it is declared safe for injection into a normally healthy human being). The government has succeeded in making the majority of us (those with weak minds) to feel like we are completely diseased and don't deserve to mix with other human beings anymore unless and until we are vaccinated. Yet we have survived to a population of 8 billion on this planet for thousands of years without social distancing and masks.

Wake up people - this was all done to prep us for the new stage of "normal" that our governments have planned for us. Let all the small businesses shut down so that the government only has to control the larger ones. Its easier for them that way.

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By tedbuck
18th Jun 2020 14:20

Actually Nefetitit is only partially right - the whole Covid virus thing is merely a contrived situation between the banks, governments and the electronics industry. Why? Well to get rid of cash of course.

The banks get more commission (Stand Chart and HSBC backing the Chinese over Hong Kong).
The governments see the absence of cash as a tax benefit as data mining would enable them to check the missing incomes.
The electronics industry provides all the cash free gizmos.

Obvious really isn't it?

It's OK I'm only joking - or am I?

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By C.Y.Nical
19th Jun 2020 11:49

My wife and I must reduce our outgoings because two substantial sources of income have temporarily ceased and one is unlikely to recover. Sadly our weekly (sometimes twice weekly) visits to pub restaurants will now be limited to special occasions only, and in any case if Irish-style practices are introduced so that we cannot just drop in and stay as long as we like we will not enjoy our visits. If staff have to wear masks and the whole event has a clinical atmosphere we will not go at all.
I shall really miss the pubs when they have gone. They are part of the fabric of British life.
I feel very sad these days.

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Replying to C.Y.Nical:
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By memyself-eye
19th Jun 2020 16:02

There are more than a dozen pubs on the high street alone in the town I live. Many were/are grubby sh*t holes not viable before coronavirus and suffered from a never ending revolving door of (hopeless) landlords. Good job if one third never open again.
(as long as the one I go to isn't one of them of course.....)

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Replying to memyself-eye:
Hallerud at Easter
By DJKL
22nd Jun 2020 10:41

Fine where there are choices but the vulnerable will possibly be the villages which currently only have one surviving hostelry, those that also needed tourists as well as locals may now start to tumble, the former hotels converted into houses/flats.

Where I lived as a child was the village of West Linton, south of Edinburgh. In the 1960s there were three hotels but over the years The Linton and the Rae Martin have shut and all that is left is The Gordon Arms, this is despite decent size housing development significantly expanding the size of the village.

The Gordon Arms sits on the main Biggar Road, I suspect it is that prominent position that has enabled it to survive, if tourist/weekend outing traffic further reduces what then, a village with a population of circa 2,300 and no public house/hotel, it is in these sorts of communities where the danger lies.

https://en.wikipedia.org/wiki/West_Linton

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