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Sat 21st Mar 2020 - Opinion special: From despair to hope
From despair to hope by Mark Wingett
Something truly amazing happened yesterday. A whole sector was told to closedown indefinitely, but instead of an outcry, there was relief, even some rejoicing. We are truly living in extraordinary times. Of course the bigger picture dictates that following the science when it comes to trying to mitigate the growing threat of the coronavirus outbreak, means closing all pubs, restaurants, cafe and bars across the UK, is the right, and only thing to do. But it still seems amazing huge parts of the hospitality sector, the heartbeat of many communities, will lie dormant over the coming weeks, and perhaps months. That many will be able to reopen or even keep on going under delivery/take-out formats is thanks to chancellor Rishi Sunak’s exceptional intervention to save jobs. 

The size of the intervention was extraordinary, bigger thankfully than first mooted. For some it came 24 hours too late and also after whole swathes of the sector had already made the tough decision to let staff go, economically unable to support them any longer without irretrievably destroying their businesses. As The Breakfast Club chairman Charlie McVeigh said yesterday morning: “Let's be clear, most hospitality businesses are now actually or technically insolvent. Or will be imminently. All directors are potentially committing a crime by trying to keep staff on, hence the unprecedented scale of redundancies, now in the millions. Many small businesses will make decisions before the weekend. An afternoon press conference without clarity on how to access support will be too late. Many small businesses are telling us they have tried to access previous support only to hit a brick wall. Need clarity quickly.” That morning’s newspapers were mooting government funding of 60% of salary, which is better than 50% but not as good as 75%. They intimated this would be payable by the employer and then reclaimed from government. A kind of reverse tax, and it was not clear whether the employer had to top-up the shortfall 40% to qualify for the 60% government contribution. 

With this in mind, and the extent to which other country’s governments had come to employees' aid, you can see why Sunak’s intervention was as surprising, as it was welcomed. Under his plans, a grant from HMRC will be made available to cover 80% of wages per person up to £2,500 for those employees kept on the payroll when their business is closed or who would otherwise lose their jobs due to the covid-19 challenge within their business. These workers will be put in furlough to identify them as jobs that would otherwise be lost and will be paid accordingly. The system and process for paying the grant has not yet been confirmed and is unlikely to be made available until end of April. However the grant will be backdated to 1 March, applicable to those who were on payroll as at 28 February and open for three months (may be extended). In the follow-up question and answer session the chancellor stated the scheme will cover everyone on PAYE (including zero-hours contracts). However, no details on process, what payment covers and mechanism for reimbursement are yet available. The devil will clearly be in the detail, and UKHospitality is working at pace to get full guidance from government on both the closure requirements – security for locked-up premises in town centres; management of stock and duty drawback; the employee protection package – where it is tax free; obligations for top up; non-salary benefits and payments; and treatment of workers currently in lay-off period.

Those details will need to be ironed out. Kevin Georgel, chief executive of Cornwall-based St Austell Brewery, said the government's support package for employees comes as a “huge relief and an enormous reassurance” to the industry but “we’re not through this”. He said: “In the short term we have an immediate challenge of having to work through the logistics, from both an operational and team aspect, as we temporarily close our managed pubs and support our tenants in light of the government’s instructions, which we respect and will adhere to. In the coming weeks we will need to work through the announcement and the fiscal support the chancellor has committed to providing and understand how we will use this to underpin our efforts in supporting our teams, tenants, customers and the communities in which we operate.” Brandon Stephens, founder of Tortilla, said: “The measures put forth by the government are hugely welcome and go a long way to savings jobs. But we need to see what the details are around the 80% coverage before we understand the impact on employment. Also, critically, with stores closed hospitality businesses are still on the hook for rents to landlords, with the quarter rent day coming in the next few days. We need a moratorium on rents, and that will be our battle next week.” Some have also pointed out the nuances the new measures might have. As one operator pointed out: “If – for example for a larger business with a small remaining delivery component – I suppose the idea is to retain a small team on full pay to manage that. But what if those people get sick? I am not sure we want a scheme that positively encourages a complete wind-down in economic activity.” 

Georgel and Stephens are of course right, on how these new measures will actually play out and on the timing of their implementation, but the fact businesses know this support is coming, is huge. The measures have saved hundreds of thousands of hospitality jobs. As the tireless UKHospitality chief executive Kate Nicholls said: “This generous package will support our fantastic staff and is very welcome and additionally gives hope to those who have been laid off. This may have saved up to one million jobs but we need it as soon as possible to ensure we can continue to trade.”

Many operators who held their nerve over the past week or so, and those with cash, will obviously be in a better position to make the new support work and come out the other side. Many have made hard decisions and desperately sad calls to let people go that may never return to the sector, in whatever form it will eventually find itself in. On the back of the announcement last night, those businesses that hadn’t temporarily closed sites, many announced plans to pivot to a delivery/takeaway model, including Nando’s, Wagamama and PizzaExpress. I understand all will keep the majority of their estate open under that model, with the latter set to keep circa 275 sites open for takeout and delivery. Efforts to keep teams together through the tough weeks gone past, and those undoubtedly ahead, will forge bonds between brands and employees, and perhaps consumers, that will be strong and long lasting. And that will be the case for both established brands and those still maturing.

Thom Elliot, co-founder of Pizza Pilgrims, told me: “We always said we would trade until told not to – taking extra precautions to ensure the safety of people of course – to protect jobs until Rishi rode in on his white steed. Every team member was surveyed in advance and no one who didn’t want to work was made to come in. To have got to a position where we are told to close but where not one member of our team will face the next months with no pay is a huge achievement both personally and for our teams. It has been a monumental effort – not least as so many of our team members are Italian and facing such difficult news from home. I would say it is one of our proudest moments as a company – in the face of two weeks where the entire world changed. On top of this we have developed new product development over the past three days with our DIY home pizza kits on Deliveroo, and we will be working hard to make sure we are as available as we can be on Deliveroo and takeaway over the next few weeks and months. It’s still going to be bloody tough – but we will get there.” 

Of course, there are still concerns. How long will the lockdown for the sector last? Does the level of support mean the government believe it won’t be as long as 12 weeks? And most pressing, and the next key battle, some resolution to the landlord/quarterly rent issue, which comes firmly into view over the coming days. As Nicholls points out: “While VAT deferrals preserve some cash, we still face rent payments next week before the support is due to arrive. Banks and landlords need to do more to help us bridge the gap towards this generous government support. Damage is being done now, so we need help now. Given support has now been provided to the whole supply chain, there is also now urgent need for landlords to follow the chancellor’s lead and defer quarter rent payments to the end of the year.” 

Some of those jobs that have just been saved will be lost in the next few weeks if the sector doesn’t get some help with rent. That is the final key piece of the jigsaw for sector survival and a topic I will address tomorrow. Long-term there is also the question of how all this will be played out and paid for, as serial sector investor Luke Johnson pointed out: “When will they reopen? What will be left? And will the price have been worth it? But this morning, it is about relief and after several tough weeks and long nights, recharging the raw emotions many felt last night. Unsurprisingly, in some cases tears flowed, for even though there are undoubtedly some more dark days ahead, in the short-term, something had finally gone the sector’s way. People could glimpse a future. Landlords and the government need to come to the table now to make sure the chancellor’s intervention isn’t wasted.”

I will leave the final words, to Alex Reilley, chairman of Loungers, which yesterday afternoon closed its 167 sites across the country. Reilley said: “I posted a tweet earlier in the week suggesting the government hated hospitality. Following Tuesday and then this announcement I am very pleased to say I was wrong. Clearly there’s still a lot of detail needed but it feels like these sweeping measures are more than just headline grabbers and ultimately the wonderful people in our sector are being offered a level of support we couldn’t have imagined earlier in the week. There’s a very challenging road ahead but as we press pause on the fantastic Great British hospitality sector the announcement allows us to start thinking about how we can support our local communities in different ways as the whole country rises to the challenge of covid-19. It also allows us to optimistically start thinking about how we can re-emerge better, stronger and humbler when this is all over.” 
Mark Wingett is Propel insights editor

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