As a concept, the “new normal” has been referenced many times over the past three years, but has proven elusive to pin down. The economy and the hospitality sector have been impacted by many different and significant factors over this period, whether that be the disruption from rapid inflation or the longer-than-anticipated recovery period from the pandemic. 

However, we believe that if we peer through the lens of investment in the sector, the signs are clear: we have now entered the “new normal”. Operating conditions are not easy, but the volatility of recent years has calmed. M&A activity is increasing, interest rates have stabilised and financing markets are functioning. Debt is available – it’s more expensive than it used to be, but it is available. We expect these more stable conditions to translate into more deal activity.

On the back of this stabilisation, we're thankfully returning to a world where business value is driven by operational performance and growth prospects. Good businesses with demonstrable growth opportunities are attracting the kind of healthy valuation metrics that could have only been anticipated in “normal” times. 

This is in contrast to the recent past, which for some, was a period to sit tight and wait for external pressures to ease. We believe we're now in the space – save for any more macroeconomic shocks – that represents a more stable situation. There does not appear to be any remaining external factors that can be reasonably expected to materially improve valuations simply by waiting (unlike, for example, sitting out the inflation spike). Investors can be comfortable now in assessing investment opportunities based on future business plans (backed up with solid historical performance), weighing up the risk of delivering these and then attributing corresponding competitive valuations for growing, high-quality businesses.

Investors are focused again on fundamentals: the top-line growth that businesses can drive from current channels; the scope for expansion and rollout; what extent the operational team has an ability to grow margins; the strength of a brand in the minds of consumers, and of course, the strength of a management team to go out and deliver the business plan. 

Amid this, we expect to continue to see a focus on deals as a mechanism for delivering synergies, such as when trade buyers have an opportunity to combine or bolt-on businesses to their existing operational platform. There remains a significant opportunity via the benefits of scale, not just from a people perspective, but also in terms of supply chain and procurement. In terms of securing operational synergies, the Big Table Group’s deal for The Restaurant Group’s leisure division is an interesting example. Management teams will be looking at similar opportunities and asking themselves how they can bring in additional brands and assets to their existing portfolio, secure synergies with their existing operations, and invest to improve customer propositions. 

Notwithstanding the peril of sweeping generalisations, we sense a new awareness of the extent to which a single brand can be expanded in a single market. It feels like there is widespread recognition in the UK that the maximum number of sites for most single formats is lower now than it perhaps was eight-to-ten years ago. This means operators are thinking about new formats and new channels much earlier in the expansionary cycle of a brand.

They are looking more at possible international plays and accordingly, we're starting to see more successes where companies are expanding beyond their home market. Franchising is also increasingly on the agenda, as a low cost-of-capital route to brand scale. When franchise income becomes a material income stream in a business, it has the ability to drive strong valuations as it tends to attract higher valuation multiples. It also enables businesses to enter new territories at a lower risk versus equity-owned models.

In terms of what will drive deal activity through the remainder of this year and in 2025, factors include: the more stable macroeconomic picture, potential reductions in interest rates, a return to margin expansion and also a realisation that time will not necessarily improve the value picture. Valuation improvement will now be driven by business performance, not a current shock subsiding. The ability to forecast more accurately is also critical, as this helps build confidence in the financial thesis and business plan. 

Against this backdrop, we expect to see private equity seeking exits on long-held assets. We will continue to see strategic consolidation plays, not just because of the benefits of synergies and the cost savings, but also as a viable route for bigger businesses to find different ways to grow. For larger businesses buying smaller platforms, an additional brand can provide more white space expansion opportunities, driving all-important growth. 

It will be interesting to see which new investors enter the sector and to what degree these new buyers see an opportunity to innovate to develop businesses differently, to justify their investments and transform returns.

A subplot is the impending debt maturities some businesses are facing, with associated refinancing needs on the horizon. We are seeing some current examples hitting the headlines. For those businesses that perhaps haven’t performed quite as strongly as they would have hoped, combined with the relatively higher cost of debt, some of these refinancings may prove challenging. Some are likely to require new money from shareholders to enable the refinancing to take place. If shareholders don't have access to that money, we can expect them to have to go out to the market, find a new funding partner, or potentially sell the business (or parts of it).

In conclusion, and returning to our main theme, it is clear that there is a positive backdrop for sector M&A; there is demand and appetite, and we are seeing deals getting done in both growth scenarios and more challenged situations. It certainly seems the case that we are now in the new normal, where investment opportunities are evaluated on the business fundamentals – namely strength of operation, profit growth, and expansion potential, and that is what is driving valuations. 

Venturing down a quiet side street in Hackney, east London, will lead you to a typical Victorian pub. Although it is an extremely attractive example of the genre. there is something rather unusual about this backstreet boozer.

 

You can catch the rather unique characteristics of the Chesham Arms in E9 on a Friday and Saturday evening when there is invariably a queue at its door and a one-in-one-out policy being implemented by its friendly manager, Joe Garcia. Just what is he offering to bring out the locals in great numbers you might ask? There is no live music, nor is there any fancy food (no food at all, in fact), or any other gimmicks present. He says the attraction is simply a good selection of competitively priced drinks served by friendly employees in an inclusive environment.

 

This environment is also extremely comfortable because what would surprise customers when they manage to cross the threshold is that the place will be far from rammed. On my recent visit, a queue had formed at 6pm, but I found it an oasis of calm inside the compact interior and in its large garden that houses the bulk of the customers. 

 

Joe has a maximum capacity of a modest 180. Interestingly, he had on occasions previously had as many as 250 people in the place, but he found this delivered no more money into the tills. In fact, it had actually worked against him because it annoyed customers, as many had to stand when drinking as well as navigating long queues at the bar – which can only house seven servers standing shoulder-to-shoulder – and deal with seriously long waits at the toilets. No doubt the lack of queues outside the women’s toilets is a factor in the Chesham Arms having such a high percentage of female customers.

 

He has rather sensibly tapped into the fact that people are attracted to good service, even if this only involves an East End boozer serving drinks and bagged snacks (albeit a great selection). Recent data from the Institute for Customer Service (ICS) shows that more than 30% of people would pay more for a product or service if they received exceptional customer care. For me, in the pub environment, this also means I’m likely to have an extra drink or two as well as returning to the venue in the future.

 

This management of numbers and maximising returns from customers while ensuring high levels of service is a tough balancing act and one that continues to tax hospitality companies, especially restaurants. One of the more obvious tactics has been to crank-up table turning. I’ve always had a phobia of places that restrict me to tight timescales at the dining table, even though I understand why it’s being done.

 

It is not necessarily the only route to go down, because restaurants could be using data more intelligently from their till systems and booking tools to calculate a metric such as sales-per-seat-hour that considers the two data points of the average spend by the customer, and the time that the person was at the table. Using these figures should enable restaurants to determine whether tables should be turned quicker or whether diners should be prompted to spend more while they are at the table.

 

For customers who have dined with them before or are member of loyalty-type programmes or on mailing lists, the data should also be able to give hospitality companies some clues as to the character of their guests. Great care has to be taken in these areas though, as found out recently by certain restaurants in St Tropez, who had been accused of racketeering by the mayor of the city because of their “wealth screening” policies, whereby they were selecting guests by the size of their previous bills and also setting ludicrously high minimum spends.

 

Against this backdrop, it is interesting that the newest high-end restaurant, Cocochine in London’s Mayfair, is highlighting its superior market positioning by appearing to eschew squeezing revenue from its guests. It gives diners their table for the whole service, avoids eye-watering tasting menus in favour of offering a simple à la carte proposition with no minimum spend, and bookings have to be made by phone. Despite its apparent easy-going model, it undoubtedly knows its prospective customers in exactly the same way as the Chesham Arms. Both have clearly worked out a model that sensitively balances customer service with the sensitive issue of maximising revenue.

 

Our village had two pubs when we moved here more than 20 years ago. One, The Crown, served exceptional pub food without being gastro. The other, The Swan, was a drinker’s pub for those nights when nothing but a pint of hand-pulled cask beer would really do. Our village community frequented both, ending up full at one and rather merry at the other.

The latter was a Charles Wells tenancy and, we were told, had a £13,000 rent bill. The other one was privately owned with a rent charge of £40,000, from memory. The latter only survived because the owner was exceptional at private bookings and catered for many village events. Her husband also had a full-time job and her mum ran the pub during the day. I imagine it was pretty hard and pretty gruelling – working all day, every day and all night, with two children too, to keep afloat.

I think the landlord wanted to increase the rent again, and then the game was up. Since then, the pub has become a bit of an eyesore – reputedly about to be converted to a private house but with a roof that still isn’t finished, leaving the inside vulnerable to the elements. It's quite sad to see it on the village green, remember the landmark that it was, and now watch its slow demise.

It was where we used to gather on Friday nights for a catch up, a gossip and to see people we hadn’t seen for a while, but you knew would be there. They supported village events and communities – they were known and well liked, and they were missed when the pub closed.

While The Swan didn't have quite the pull or attraction of a consistently present couple like Shaun and Sarah, it did serve a purpose. Its closure, near the date when The Crown also closed, was a complete pain. Our Airbnb guests frequently ask if we have a pub in the village – it's the sort of village that needs one. Then they ask if they can walk to one instead, and I point them to The Thatch in Adstock with the wonderful Andy who, ironically, lives in our village. It’s about an hour walk there and about an hour and a half walk back if it’s still light, longer if its dark. It’s a brilliant pub but it’s not ours, if you know what I mean.

Anyway, miracles of miracles, The Swan opened again a few weeks ago, and honestly, the village cannot believe its luck. Its pavement A-board said, “Opening 1 April. This isn’t an April Fools!” No one believed it. Now it says: “Come in and see us and say hi!” So, we went up tonight for a quick drink, a soup and a burger. It feels like the rest of the village were there too, by the look of it.

 

Last week, the pub held its first pensioners’ lunch in the lounge area. This week, the pensioners took over the whole pub, including the back room with the pool table. The pub has been rammed since reopening and the new landlords have found themselves inundated with demand for food. The fire was roaring, the landlords came over to say hello, the beer was wonderful, the food filling and tasty and we saw people we had never seen before from the village. We are booked in for Sunday lunch too – seemingly, its roast dinners are to die for.

It may be early days, but I have a feeling that the community will be using the pub a lot more than it used to. It wants the pub to survive, to bring life back into the village and to be the hub of the community again. It wants to support George and John, who have taken on an unloved pub and made it come alive. It's been too long. If there is hope for us, perhaps there is hope too for many of the closed and derelict pubs around the country.

Anyone watching the BBC News around 10.20pm on a Saturday will be familiar with the line: “If you don’t want to know the football scores, then look away now.” Similarly, if you don’t want to hear any good news, then look away now.

 

All the stories around our industry are of unremitting doom and gloom. “Pub closures!” “Brewery failures!” “No government intervention!” scream the headlines. Now, I hate to be the harbinger of good news, but the reality is quite different, at least in my experience.

 

By way of introduction, I work for Wensleydale Brewery, a small business situated in the Yorkshire Dales, selling our cask ale throughout Yorkshire and the north east. In a former life, I ran several pubs, some well, some not so well. Prior to that, I was a regional sales manager for a multinational brewer, so I’ve seen the industry from all angles in the 20-plus years I have been involved with it.

 

Coming out of covid, we at the brewery had no idea what to expect. Would drinking habits have changed for good? Would the pub recover its place as the epicentre of social interaction after the enforced months long shutdown. Almost exactly four years on from those frankly scary days, the answers are definitively no (to the first question) and resoundingly yes (to the second).

 

We have never looked back. In 2022, we expanded our production capacity by 25%. Last year, we increased it by 20%. All to meet demand. The start of 2024 has seen no let off and we are looking to expand yet again. Existing customers have been buying more and we have been acquiring new customers at a rate of knots. Pre-covid, our beer didn't get too far outside the Dales. Now, as our reputation spreads, it travels all over the north of England.

 

On a human level, we’ve grown from a team of four to seven, with another long-term hire in the offing. The headline figures are that the market overall is shrinking, and that cask ale is declining at an even more rapid rate. So, how have we managed to buck this trend and deliver double-digit growth year-on-year?

 

Well, the core of any successful business is an excellent product. We brew good beer and we have new brews coming out every week. Offering constant variety is a big USP for us. Last year, we brewed 92 different cask ales.

 

We also think about where we want our beers to be. For all its faults, the Good Beer Guide is a great prospecting tool, and the ambition is to be on the stock list for those pubs that pride themselves on the quality of their ale and their throughputs.

 

We’ve been fortunate in getting the right people into the right roles. Brewers can brew some fantastic beer, but they often struggle to sell it. The skill set required to brew excellent beer is completely different to that required to sell it.

 

We aren’t unique in this. Contrary to the prevailing narrative, there are plenty of small breweries that are doing extremely well, selling everything they brew. Often, these are defining the market, raising the bar in terms of quality.

 

A clear growth strategy, a strong product, talented people and sound finances are the core ingredients for success in a challenging market. As a customer of mine wisely said: “If I take my eye off what I do, to look at what the competition does, I’ll lose my edge.” Concentrate on what you do well and don’t get distracted by external noise.

 

And that brings me on to my customers, the ones selling our beer in increasing quantities. In a part of the world that is far from prosperous, I’ve lost count of the pubs, bars and restaurants that continue to grow, despite all the challenges they face. 

 

I was in my local pub recently; one I supply on a weekly basis. I asked the owner how things were going. Somewhat shamefacedly, he said business was great, but he doesn’t dare talk about it. This is just one example, but there are plenty out there – be they food led, micros, in the countryside or in town centres – that are trading very well indeed.

 

There are lots of positive stories, but too often they are drowned out by the announcement of a brewery ceasing trading or a pub closing. Such things have always happened, but this should not be the prevailing narrative. Plenty of businesses in this industry that are doing well, expanding, delivering excellence to their customers and reinforcing their role as an essential part of the local community. 

So, all is not lost. Good businesses, be they breweries or pubs, will continue to thrive. It really isn’t all bad out there.