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Morning Briefing Strap Line
Fri 9th Apr 2021 - Friday Opinion
Subjects: Checkpoint Britain, taking the silver linings in a year like no other, the third place, investment opportunities
Authors: Paul Chase, Thomas Kidd and Tobias Jackson, Glynn Davis, Graeme Smith

Checkpoint Britain by Paul Chase

Over the 15 years I have been writing and speaking about alcohol policy and public health, the one thing that became clear to me, very early on, is the new public health movement is not just about gradually improving the health of the public, but rather it’s about creating a new way of governing society. If anyone was in any doubt about that, the experience of the pandemic over the past 12 months must surely have dispelled that it.
One of the public health movement’s anti-alcohol intellectuals, Christopher Tigerstedt, wrote of the “new risk concept that arises within the new public health movement”, one in which “the dangers are everywhere and they concern all; they are outside the control of the individual”. Tigerstedt goes on to explain once the linkages are made between epidemiological evidence – read “modelling” – and political policy, “we may end up with a specific discourse that treats public health as a way of governing society, rather than as a field devoted to promote gradual health progression”.
Isn’t this exactly what we’ve witnessed during the course of this pandemic? Politicians and public alike being presented with epidemiological models predicated on dubious assumptions. Predictions of doomsday scenarios unless politicians unquestionably accept these predictions and link them to policies for suppressing risk of disease by controlling public behaviour – requiring us to exchange our freedoms for safety provided by the state. The public has bought into this idea on the reasonable assumption their submission to state dictums would be temporary; designed to deal with a genuine public health emergency.
But now the public health panjandrums have had a taste of power they are desperate to hang on to it, which is why we are seeing the goalposts being moved in respect of the government’s roadmap. This brings me to the thorny issue of covid vaccine passports. I am opposed to these in all circumstances, including their requirement for international travel. The World Health Organisation has said vaccine certification would further isolate people living in the poorer countries where the availability of vaccines has been delayed and their rollout painfully slow. It is right, and vaccine nationalism has a lot to answer for here. We won’t get our international travel industry back until we solve that problem. But I know our government doesn’t control that, and other countries may demand proof of vaccination or a negative test for the foreseeable future. So, it seems to me inevitable that vaccine certification will be required to travel abroad. 
But the requirement within the UK to produce a QR code on a smartphone as proof you have achieved the “social credit” of a vaccination to access the “privilege” of normal social activities – such as visiting a pub or bar – activities that were unquestioned freedoms just a year ago, is a step too far. It will change our country forever into the miserable dystopia of Checkpoint Britain. A Britain in which you will be excluded if you can’t have a vaccine for medical reasons, or if you are from a religious or ethnic community that is hesitant about vaccination. It will create the digital platform to which numerous other requirements for accessing social life could be added. 
Perhaps this modified NHS app will, in future, contain information about whether you’ve been convicted of an alcohol-related offence or an offence for possession of cannabis or some other illegal drug. Once the precedent has been set that a centralised computer will hold confidential health information that citizens are obliged to show to a door supervisor then why not certain categories of offending behaviour? Make no mistake about it, if resisting vaccine passports isn’t a hill we’re prepared to die on then little by little, over time, we will usher in a system of social credits that will be used to whip us into conformity. The Chinese Communist Party has already used the covid pandemic as an excuse to bring in just such a system, and citizens can be refused access to trains, planes and international travel for trivial offences such as jay walking or the more serious offence of criticising the government on social media.
21 June 2021 is the day on which all covid restrictions are supposed to be lifted. But now the weasel words of politicians, prompted by health zealots whispering in their ears, are beginning to be insinuated into public discourse. Trials on whether covid certification will be required for nightclubs, theatres, mass sporting events – but don’t worry folks, you won’t have to produce a passport for a pint, at least not yet. But once everyone is vaccinated then government isn’t ruling out the possibility that social distancing rules in pubs and bars will only be relaxed in those premises that have “volunteered” to be part of the covid passport scheme. This is how freedom is lost. Not in one fell swoop, but rather it is salami-sliced away by politicians who have created fear of invisible threats.
We must insist 21 June 2021 is Freedom Day – no ifs or buts.
Paul Chase is director of Chase Consultancy and a leading industry commentator on alcohol and health

Taking the silver linings in a year like no other by Thomas Kidd and Tobias Jackson

Central London, late night and drinks-led. That was Adventure Bar Group last March. On the face of it, and with the best will in the world, we weren’t exactly ideal “survive and thrive” through-a-pandemic material. By any stretch, the “pivot” required when lockdown landed was massive.

But like many other businesses that are still here and able to contemplate some form of opening from Monday (12 April), we feel like we’ve hit another seismic milestone in this battle for our business and the fight against covid. It’s another landmark reached. 

Like many businesses, we were rabbits in the headlights a year ago, not sure where to turn or how to survive. There were lots of things that happened but the reality is securing funding via the Coronavirus Business Interruption Loan Scheme was massive for us. This, allied to an absolute dogged, stubborn determination and unrelenting focus on keeping as many people in the business bound together through an almost cult-like devotion to culture, saved our bacon.

As unsurvivable as a prolonged lockdown seemed at first, once we’d secured that funding we knew we could probably get through. Like many other businesses, it actually gave us an opportunity to step back like never before, to review everything and to reimagine certain elements of our business and how we did things. Not exactly a luxurious navel-gazing exercise, it was vital and we knew we had to change parts of our operation and our company.

At the heart of it, nothing has changed. We still had a desire to be the best company to work for, and the best operator of great, experience-led bars and, ideally, a landlord partner of choice. But everything changed. Before the world flipped, our business was pretty focused on fun times from 5pm until late, in key London hotspots, and largely an absence of food. 

In order to survive, we suddenly had to establish how to elongate our trading periods and to drive spend per head such that a business, never designed to be able to survive social distancing and table service-only, could generate enough revenue to breathe. This meant running events, introducing a decent food offer and ensuring our venues were, as far as possible, fully booked for every hour we were open, all day. 

In the first few months from July we delivered 31 completely new events. From then, 50% of our revenue came from things we didn’t sell pre-covid, from events to new products and experiences. In August, many of our venues were taking more money before their old opening times than they used to take in total sales on any day. In truth, we had started doing things that perhaps we should have been doing already – we just never had to. 

Like lots of other operators who have been able to get through, we feel that, in many ways, we are stronger and way more innovative. We’ve always been creative but, operationally, we’ve taken massive leaps and we’re emerging in much better shape. Albeit with the challenge of more debt, our situation has been helped by supportive investors and a mostly receptive and collaborative landlord response. 

Our team culture and togetherness has also been central to our survival. It means we have been able to protect many jobs in the third lockdown and, as we contemplate growth, we expect to double the team before the end of 2021. As of Monday, we will become the operator of one of Birmingham’s biggest outdoor bar and food markets when Luna Springs in Digbeth opens. And this will be followed by a new Tonight Josephine, which will open on 17 May, again in Birmingham, and right in the heart of the town centre.

And so although battered and bruised, and with quite a few challenges ahead, we are thankful and feel fortunate to be here. Looking ahead to recovery, expansion and growth, in a strange and slightly perverse way, we are also grateful for the silver linings of a year like no other and, as above, another landmark moment for our industry. To both those able to open next week and to those having to sit it out until 17 May, good luck. 

As for Monday, it’s bound to snow, right? In this brave new world, even that doesn’t quite seem to be the problem it once was.
Thomas Kidd and Tobias Jackson are co-founders of Adventure Bar Group

The third place by Glynn Davis 

One of the few positive elements to come out of covid-19 for many people has been the removal from their lives of the drudgery that is the daily commute to the office. Meanwhile, one of the downsides for many people during this prolonged period of lockdowns has been the enforced working-from-home scenario within confined spaces unsuited to conducting productive work.
This has led to the ongoing argument over whether people will return to offices or whether they will continue to work from home. Some companies including the big technology firms like Twitter and Facebook have made it clear they do not expect their employees to return at all if they choose not to. Whereas others like investment bank Goldman Sachs have, with some clarity, suggested they want everybody back in the office yesterday. The sensible approach, being supported by many organisations, is to take the middle ground and enable a flexible, hybrid approach mixing office and home working.
What seems to have been overlooked is that this is not a black and white argument – office or home? There is another option. Such is the lengthy period we’ve been denied access to coffee bars, pubs, bars, restaurants, hotel lobbies, members clubs and any other four-walls beyond our homes is that we seem to have almost forgotten there is a third place (as Starbucks has long referred to its coffee bars) where work can be conducted. It is free from the constraints of both the home and the office.
This surely represents an enormous opportunity for the hospitality and foodservice sectors. We’d already had a taste of what things could be like when the first lockdown was eased and people decamped from their homes with laptops in hand to work wherever they could find cover from the rain/sun, Wi-Fi access and refreshments. Various operators, including Young & Co’s, swiftly brought in hot desking-type offers with Wi-Fi access, unlimited hot drinks and maybe a sandwich or snack for lunch also included for a modest fixed fee.
Such initiatives were beginning to gain some traction when the second lockdown was brought in but, come 17 May, such activity should be restarted as the demand for these services will surely be sufficiently strong. Recent data from Streetbees suggests one in three people would be happy working from a bar/restaurant post-covid-19.
I’ve already got my hopes up that such a deal will be introduced at my local pub. Like many such venues located outside a city centre, it has typically been relatively quiet from noon until late afternoon on weekdays. Introducing hot desking-type propositions seem like a sure-fire way to drive extra footfall during these down-times, generate additional revenues, potentially draw in new customers local to the area and, for anybody still toiling away at the end of the day, there is the opportunity to tempt them into having a beer or a glass of wine – or maybe two. What better way to seamlessly end the day?
Such initiatives will be essential for businesses as they look to drag themselves back into profitable territory. The sweating of assets will be high up the agenda of every hospitality company. Helping them on their paths to recovery will be the incredible innovative mindsets they have adopted over the past year, developing new revenue generating activities. To continue these will be imperative in order to pay various accrued arrears. 
The recent appointment by Hawksmoor of Jo Fleet to head up its “Hawksmoor at Home” meal kits and delivery operations as well as overseeing its retail offer that currently involves a steak range sold through Ocado, is indicative of the importance now being placed on these new channels. Expect to see more such moves as the industry reshapes itself for a new era with newly empowered channel agnostic customers who are just as likely to be found working in the pub as they are in an office or at home.
Glynn Davis is a leading commentator on retail trends

Investment opportunities by Graeme Smith 

During the pandemic the focus for operators and investors has, unsurprisingly, been on safeguarding the future of their businesses and ensuring they are appropriately funded to weather the storm. However, the pandemic does not mean the investment market is closed for the long term. There is pent-up capital available to be deployed in the sector and with outdoor trading beginning next week, greater certainty provided by Budget support measures and a fast-moving vaccine rollout, investors are turning attention to what the winning concepts might be in a post-covid world.

Private equity investors are continually looking to get to know interesting businesses, with a view to investing once the market outlook is more certain. Similarly, trade buyers with strong balance sheets (or an owner willing to provide capital) may also look for bolt-on acquisitions of scalable, attractive brands because consolidation offers the chance to drive growth and cost synergies. In addition, there has been a significant reduction in the numbers of outlets, with our latest Market Recovery Monitor showing the casual dining sector has experienced one of the sharpest contractions, with 1,200 closures since March 2020, reducing capacity by about a fifth. This squeeze will benefit those remaining and, given some of the incentives we are seeing on new sites, one could argue there is the potential to drive higher returns on capital than ever before, if you partner with the right investor.

We expect transactional activity to pick up again once the sector reopens and more mainstream investors get comfortable with the medium-term impact on the market. What’s beyond doubt is the pandemic has led to many businesses adapting for the better, offering the potential to drive even stronger operations in the “new normal” – which is attractive to buyers and investors. 

Acquirers will likely focus on the following key questions when considering a business, post-covid: 
• How has the business traded during the pandemic? An ability to drive profitability during more challenging trading periods helps build confidence on the resilience of the offer. 
• How has the business evolved during the pandemic, and what steps have management taken? For many, operations are now stronger than they were before. 
• Can you trade multi-channels effectively? Delivery is here to stay, as is the need for an effective digital presence (and for some brands, meal kits and other channels have also been developed). 
• How have your roll-out plans changed? What is now the view on what constitutes an “ideal” site for expansion? 

We all hope after a second half of 2021 focused on recovery, next year we could, with a fair wind, get back to pre-covid trading levels. As Robin Rowland, operating partner at investment firm TriSpan, the backer of Rosa’s Thai and Thunderbird, said in Propel recently, we are entering a new phase where businesses need not just “survival capital” but also “development capital”. With that in mind, we see three major investment themes playing out. 

1. Balance sheet rebuilding. With the majority of the sector weighed down by debt, the next year and beyond will be about rebuilding balance sheets and clearing arrears. Operators may currently have low or no equity value and management teams are unlikely to want to dilute their equity position further or take on more debt. They will also have limited cash, and probably appetite, to be able to expand so will take the next 24 months biding their time before returning to significant expansion, with the balance sheet in a better state. 

2. Buy-and-build platforms gaining traction. With the market highly fragmented – buy-and-build exponents can take advantage of this and boost margins with cost synergies. The likes of Epiris (The Big Table Group), Towerbrook (Azzurri Group) and Partners Group (Cote) have acquired businesses to act as platforms for further consolidation. They have experienced management teams in place, access to capital and can leverage infrastructure to add new brands or groups of sites. These scalable platforms are in demand, with real estate funds such as the Oaktree-backed, RedCat Pub Comapny investment vehicle one that has already broken cover with the acquisition of a package of pubs from Stonegate. We expect more to follow. 

3. The backing of so-called “leading lights”. These are the leading brands in their cuisine areas. Imbiba’s recent investment of £3.5m into Pizza Pilgrims to aid its roll-out plans is a good example. With access to funding, these businesses will expand and cement their leading positions in their markets. Some companies that previously were not on the market and not seeking investment, may now be in-play due to the crisis, although these deals will likely require the incoming investor to pay tomorrow’s price today in order to secure the deal. This can still make sense though, due to the potential to achieve outsized returns in a disrupted market with supportive property conditions. 

A final point – and while this may seem fairly obvious – is that operators must be able to articulate the story of their business and the future opportunity. Of course, the immediate focus will be on keeping your head above water but when conversations with would-be investors do occur, it’s critical to be able to tell the story of surviving the toughest period in the sector’s history and how you can take advantage of the opportunity to grow as the market bounces back. It could be the difference between securing investment or being left on the shelf. 
Graeme Smith is a corporate finance specialist and head of hospitality and leisure at AlixPartners
AlixPartners is a Propel BeatTheVirus campaign member

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