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Tue 29th Sep 2020 - Opinion Special: Moving forward with gritted teeth

Moving forward with gritted teeth by Mark Wingett

“In order to reopen safely after the first lock-down, we reduced our capacity (drastically) to make sure our customers could follow the social distancing regulations, we introduced a QR code table service system, only allowed a maximum of six people per table, put a one-way system in place, installed screens and hand sanitiser stations and decked ourselves out in PPE. We did this to keep our staff and customers safe. However, if we were to stay open with the reduced opening hours, it would inevitably destroy us as a business. We have made the decision to close again so that we have a chance to reopen again in the future. If we tried to stay open now, there is a strong chance it would lead to us closing our doors for good,” wrote a Manchester-based bar operator.

Sadly, I could have picked numerous social media posts from sector operators during the past week giving the same depressing, but realistic, take on how the latest government restrictions and interventions (and lack of supportive ones) has, again, impacted the industry. Six months ago, when the government locked down the sector, there was, in the majority, understanding around its decision; cases were rising, deaths were spiralling out of control and the NHS may have been overrun. We were in uncharted territory, we were “following the science”. Six months on, fear and anxiety have been replaced by anger and frustration, we’ve stopped "following the science" and we are living with knee-jerk reactions. When restrictions were placed on the sector in March, government support was, if not perfect, at least proportionate to the situation the sector was placed in. This week, with the rule of six already harming fragile consumer confidence and the introduction of a 10pm curfew taking its legs away, we got nothing that was near proportionate to the consequences these latest government measures will bring. Yes, we have got used to measures being leaked days beforehand, but before now there has always been something extra from the chancellor – a cherry on top that no one was expecting. But last week, that never materialised.

It is understandable the majority of the sector feels like the government has turned its back on it. There is a growing frustration that the rules the government is pushing through without scrutiny are incoherent, destructive and pointless. There is also anger over the scientific evidence, or lack of it, behind the decision for a 10pm curfew – a move that has, inevitably, led to crowds dispersing on to and congregating on city streets from 10.01pm, and crowding public transport, on their way, in many cases, to house parties and private, unregulated gatherings. Many are now, quite rightly, pushing the government to publish the medical, scientific and behavioural evidence behind the decision to impose a 10pm closure time or otherwise reverse that decision. The most obvious response to a policy that does not work is to review it and change it but, frustratingly, there is no sign that the government will do so. The sector – what’s left of it – won’t forget. As Luke Johnson tweeted: “Over the past 48 hours, I’ve spoken with a number of entrepreneurs and business leaders. The mood is increasingly one of despair. The animal spirits are being crushed by government fear-mongering and dystopian new normal. Tories are now the anti-business party.” Where is the engagement over these life-changing decisions?

An extension of the VAT cut to the end of March was, of course, welcomed but will probably need to be further extended and still does nothing to help wet-led operators. The chancellor’s most significant policy was the Job Support Scheme (JSS), an extended, reformed and rebranded form of the existing furlough policy. But while the JSS will reduce the coming rise in unemployment, it will far from halt it. As Torsten Bell, chief executive of think-tank The Resolution Foundation, said: “The chancellor has rightly brought economic policy back in line with the reality that covid restrictions are here to stay. The policy is a big deal and will slow the rise in unemployment, but the design means its big effect is to shift the jobs cliff-edge to the end of January. After January, this scheme will not be effective at encouraging firms to hold onto workers in the sectors that are hardest hit (ie, hospitality/leisure) – the employer contribution is just too high. The decision to require employers to contribute half of the costs of the scheme means that while some firms will wish to use it to retain workers because of high recruitment/training costs, it is not designed well enough to encourage firms to cut hours rather than jobs. This is particularly true in the low-wage, high-employment sectors like hospitality and leisure that are at the centre of the unemployment crisis we face.” Almost one million people in our sector are still on furlough, sadly many will not be coming back to jobs and some huge and life-changing decisions will be being made by sector operators this week and over the coming weeks. And when January comes, the labour market is likely to be further impacted by the fallout from a conclusion to Brexit. A thought for head office teams now having to again rebase forecasts and budgets, and HR teams faced with making redundancy calls. As hospitality chief executive Kate Nicholls said: “It is no longer a question of if, but when, and how many.”

The news on Friday that late-night operator Revolution Bars Group was now working with advisers would have not come as a surprise to many after this week’s news. More of its peers, including the likes of Drake & Morgan and ETM Group, with their estates based around office blocks and transport hubs, may now be pushed to go down similar paths. A penny for the thoughts of Stonegate Pub Company and its late-night division – one of the best in the sector – including the Be At One brand. As one operator said to me: “If you know the pub or bar is closing at 10pm, it will stop some people going out at all, especially the younger demographic, because they go out later anyway. At the same time, those last three or four hours on Friday and Saturdays are critical to pubs, the spend per head goes up – and gross profit also – as drinkers switch to spirits and cocktails.” Will Wright, head of regional restructuring for KPMG, said: “The sense of foreboding in the casual dining industry is palpable. Aggressive planning for all scenarios is now back on the table, with yet more CVAs and administrations having to be considered if operators are to survive over the winter months.” While the leasehold-based restaurant sector has borne the brunt of those restructuring processes so far, sadly the pub and bar sector will come under the microscope. How long will having a freehold estate prove to be a comfort blanket? Ross Hindle, analyst at Third Bridge, said: “The UK hospitality executives we’re speaking to say Q1 and Q2 next year are going to be very tough for the pub trade as VAT goes back up, suspended payments become due, unemployment bites, business rates return and rent relief tapers away. Some say a so-called ‘polo mint problem’ has already emerged, with inner-city pubs fighting for survival, while community and suburban pubs, typically serving food, do better. Overall, experts say, the UK is likely to lose between 1,500 and 2,000 pubs over the next 12 to 18 months. We’re told many pubs only become profitable at between 70% and 80% capacity, yet social distancing regulations and the rule of six mean many public houses are now capped at around 50% to 60% capacity – and so unable to break even. The usage of outdoor space can bolster that percentage but its impact is expected to fade as the winter months draw in.” Some have suggested that pub closure figure is conservative and may, sadly, end up being double that figure. Again, the nightclub, theatre and event sectors were ignored for targeted help, and many could find themselves closed for 12 months. If that happens, will it bring about a change in habits from consumers? And how long would it take to bring that back?

Of course, the sector will dust itself off and look to make the best of this insufferable situation. As Loungers chairman Alex Reilley tweeted: “Another day, another new set of operating procedures. For the first time in our 18-year history we’re now offering table service in all 137 Lounges. The positivity of our teams in adapting to these constant changes is amazing. The 48 hours’ notice we had from the government is a disgrace.” Without a doubt there will be an increased focus on delivery, at-home kits and retail ranges. It’s naturally increased as a percentage of sales for the majority of operators who use this channel and the work-at-home directive will clearly increase demand further. As one chief executive told me: “It could be the saving grace for some sites where we’ll see eat-in sales take a further hit due to the lack of people travelling to work.” For many, the work-at-home ‘advice’ is probably going to have a bigger impact than the curfew because, as for restaurants and food-to-go, the vast majority of sales are pre-10pm. The chief executive continued: “We’ll lose a few sales here but we’ll lose more by potential customers not travelling into work Monday to Friday, especially in our city centre sites. But in addition to this, there’s customer sentiment: will Project Fear MK2 do its intended job and scare people who were intending to dine out with friends into staying at home? Already, brunch promotions have begun to fill up my inbox, and the innovation of marketing teams will be needed over the coming days. Could we see the return of the “boozy brunch”? I expect many operators who have extended their own Eat Out To Help Out schemes to look to attract consumers to earlier time slots. As Simon Potts, chief executive of The Alchemist, pointed out: “There remains a serious absence of viable alternatives to spend your cash on, so I suspect the eating/drinking patterns will shift forward naturally, particularly given the work-from-home mantra people will want to escape.” Those brands with a strong pre-booked business, for example the Inception Group, will also be better positioned here.

And what about those currently exploring their options or long, drawn-out discussions with landlords? In terms of investors, and there remains some out there, new restrictions and a threat of a second lock-down means investors will need to have an even greater understanding of the impact on trading windows. Unsurprisingly, stronger trading in earlier dayparts will be looked on more favourably. Could it be that if sites aren’t open by the end of October, they are unlikely to reopen at all under the same ownership? The rent issue remains the elephant in the room and, by the end of the year, that elephant will be more like a big hairy mammoth as arrears continue to stack up and the landlords will have had three more months of coming under pressure to pay their own debts.

Of course, it could have been worse and could get worse. A two-week “circuit breaker” lock-down was considered, and may still be on the table if these current restrictions don’t have the required impact. Although the prime minister claims that a second lock-down is the last thing he will consider, the fact that restrictions which recently came into force in Cardiff and Swansea county areas and also the town of Llanelli, plus in further parts of the North East, mean large parts of the UK are already in lock-down. A second full lock-down is almost being pushed through by stealth. And still we have no evidence to back up some of the decisions currently being made that are proving so damaging for our sector. As Chris Snowden, head of Lifestyle Economics at the Institute of Economic Affairs, said this week: “Future generations will be bewildered that a prosperous country threw its economy off a cliff in a failed attempt to suppress a disease that kills less than 1% of those infected, most of them in their 80s and 90s.”

I imagine that when the anger and frustration died down, if it will, many chief executives, managing director, owner-operators felt numb for their businesses and their teams, and about where they went from here, after six months of fighting tooth and nail, here was another six months starting on a roller coaster with plenty more lows than highs. I expect many will have used last weekend, to dust themselves off and renew the fight for their businesses, their employees and the sector. As Fleet Street Communications managing director Mark Stretton brilliantly wrote in his Propel Opinion on Friday (25 September): “There is also little doubt in my mind that having spent most of the past few days in an understandably reactive mode, many of the sector’s leaders will now turn their attention to positive and proactive action; what to do, how to make it work and how we pull our businesses through. It was one of the things that was so impressive in the dark days of March how quickly the sector’s leaders were able to absorb and process what was happening, and react accordingly.”

We can’t stop fighting. Even over the past week, there have been many examples of businesses adapting again – glowing endorsements of the sheer resilience of the hospitality sector. Whatever is thrown at them, they just get on with it with good humour and brilliance, even through gritted teeth. In her brilliant column in The Times on Monday, Libby Purvis wrote that “hospitality offers a training ground for the young, a safety net for the hard-up and a vital incubator for entrepreneurs”. What a shame and a disgrace that these opportunities are now at risk for so many due to these latest unfathomable restrictions. As Fuller’s chief executive Simon Emeny pointed out: “The government will need pubs, hotels and restaurants to kick start the economy in the future but, for the second time in a week, it has failed to see our sector as part of the solution.” As I have written before, spare a thought for the damage being done to the mental health of those in the sector, from boardroom to bar. Looking through an annual report this week from a sector operator (I don’t get out much), one of the lines regarding the role of directors at this company said they should, at all times, “promote a culture of integrity, honesty, trust and respect”. If only we could get the same for our government because, sadly, it is going to get a lot worse before any recovery can be glimpsed or planned for. In one of the many Rocky films, the main protagonist says: “But it ain’t about how hard you hit. It’s about how hard you can get hit and keep moving forward; how much you can take and keep moving forward.”
Mark Wingett is Propel insights editor


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