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Morning Briefing for pub, restaurant and food wervice operators

Fri 17th Mar 2017 - Friday Opinion
Subjects: Political pressure starting to pay off, the shape of things to come and taking growth figures with a pinch of salt
Authors: Kate Nicholls, Paul Chase and Ann Elliott

Political pressure starting to pay off by Kate Nicholls

Political pressure brings results as clearly seen by chancellor Philip Hammond’s chastening U-turn this week on his major Budget announcement of National Insurance increases for the self-employed. While the fallout from that continues, the episode demonstrates how the depth of feeling among MPs on certain issues can influence and change policy.

In November 2016, we were told by ministers there was no real likelihood of any support on business rates for our sector but persistent and robust campaigning resulted in some very real wins. We’ve heard the chancellor acknowledged the last-minute changes he made in his Budget on rates were solely down to pressure from backbench MPs lobbied by the pub and restaurant sector. So, it’s testament to the fantastic and committed support from operators in the run up to the Budget that really did make a difference. While the £1,000 discount for a proportion of pubs grabbed the headlines that was little more than gesture politics and overshadowed the areas where we got a lot of what we asked for.

Rates review
The chancellor’s announcement there would be a medium-term review of the business rates system “to ensure the digital economy pays its fair share” is welcome and is now our priority focus. The government has stated it doesn’t want to raise more revenue from rates so a greater number of “clicks and mortar” companies paying into the pot should prevent pubs and restaurants subsidising other sectors and the total amount paid by the hospitality sector drops.

We are pressing for early implementation of other reforms at this year’s Autumn Budget – notably moving from Retail Price Index (RPI) to Consumer Price Index as the metric for annual increases and the introduction of a cap on those, given that RPI is predicted to hit 3.9% in September and this would be the amount added to bills in April 2018. Alongside we are calling for a more frequent revaluation cycle and, most importantly, clear rules on the disregard of brand overtrading, personal goodwill and ratepayers’ investment – so if you invest in your business you are not penalised for success.

As a side note to this, the Association of Licensed Multiple Retailers (ALMR) has been pressing for changes to the code of practice on business leasing and is representing hospitality as part of a high-level working group on this. We have suggested the use of upward only rent review clauses should be reviewed and mid-quartile analysis applied to rent review comparables. This would not only help operators in rent discussions but would also bleed into rates reform in the future.

Transitional relief
This is where restaurants and larger pubs can still benefit as the chancellor announced additional discretionary rate relief that local authorities will be able to provide over the next four years. The government is allocating the most money to local authorities with the highest proportion of businesses facing a significant increase and needing the most help – proposed as being premises with a rateable value of up to £200,000, which are facing increases of more than 12.5%; in other words, restaurants, bars and pubs. 

We will be strongly urging ministers to give clear direction to local authorities in the run-up to May’s local elections to prioritise pubs and restaurants facing the greatest increases. We recommend businesses write immediately to their local authority to register as being in need of priority support. A template is available to download on the ALMR website. Incidentally, a closer look at the new rateable values highlights the unfairness and disparity of the current system that sees pubs and restaurants subsidising other sectors. It is the height of irony the London offices of the Department for Communities and Local Government (DCLG) – the department responsible for setting rates and located on prime Westminster real estate – is benefiting from a drop in its rateable value, while nearby pubs and restaurants its civil servants regularly enjoy are seeing double-digit increases. The nearest pub to the DCLG offices is seeing its rateable value go up by more than 50%!

Rates appeals
A further big win for ALMR campaigning is the government confirming it will scrap plans to impose a test of “reasonable professional judgement” at appeal. This is hugely important and will have a positive effect in the long term because the test would have effectively removed a right of appeal unless bills were wrong by a very large margin. ALMR figures show in 2010 there were 17,000 pubs and restaurants that successfully appealed their rateable value that resulted in an adjustment of less than 10%. If this proposed test had been applied back then, those businesses would have been carrying an extra £95m cost.

Regardless of your own views on the Budget, what it did signal was a government willing to listen and act on the specific concerns of business. Yes, it’s a good start on the road to reform but the issue of business rates allied to the real concerns of operators is not going away. The fight for a fairer deal continues.
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers

The shape of things to come by Paul Chase

As I write we await the outcome of the House of Lords investigation into the workings of the Licensing Act 2003. One of the things it was considering was whether “protecting and promoting public health” should be added as a fifth licensing objective. I don’t know what their Lordships will conclude on this issue, although rumour has it they will not recommend this. But that hasn’t stopped Public Health England (PHE) from publishing “Public Health and Licensing Guidance”, subtitled “A simple guide for responding to applications as a responsible authority”. Directors of public health have been included as responsible authorities under the Licensing Act since 2013, so many in the “public health” community may consider this guidance long overdue.

So, we have a guidance document consisting of some 27 sides of A4 that explains to local public health practitioners how to object to a licence application based on one or more of the four existing licensing objectives, notwithstanding that “public health” isn’t one of them! As the document explains on page seven: “Although the licensing objectives do not include a health objective, there is a health and well-being angle to each of them. It is also possible for a director of public health to have an independent and supporting role as a responsible authority. The above provide some examples that do not cover the full range of opportunities for public health involvement, but outline some composite examples of actions that have been taken by responsible authorities that directly draw on the connection of health to the existing objectives.”

The reference in the second sentence of the paragraph quoted to “the above” refers to examples regarding how a director of public health might smuggle in a health objection as an objection based on, say, public nuisance: “…a representation requesting noise-related conditions or objecting to an extension of hours for an application using evidence on the health impacts that sleep deficit can have on the local residents.” Or evidence from: “...last drinks survey data, A&E and ambulance data indicating a high number of alcohol poisoning cases coming from a particular premises, or from within its near vicinity.”

You can see right here the difficulty in relating general evidence to a particular application for a premises that hasn’t yet opened or had its hours extended. You can also see the implicit assumption of PHE is local directors of public health should be looking for reasons to object. In fact, the guidance document proposes a traffic light system based on “red” and “green” applications. A “red” application – one that would need to be looked at with a view to making a representation – would include any application for off-licences, any application for hours after midnight or before 8am, anything within a cumulative impact policy, nightclubs, premises reviews by other responsible authorities and high volume or “vertical drinking” establishments.

Whereas a “green” application – one that would be of low concern to public health – might include applications for restaurants before midnight, food venues before midnight, theatre bars before midnight, changes to the designated premises supervisor and Temporary Event Notices as the director of public health does not have the remit to respond to these.

Clearly these benighted nannies don’t want the citizenry up and drinking after midnight – and even then only in posh eateries or theatre bars – but preferably not at all! When your starting point is it’s the availability of alcohol that makes people drink it, and that population levels of consumption drive alcohol harm, then it should come as no surprise the starting point for directors of public health in relation to any application for a new licence is “how can we stop it”? The purpose of the traffic light system is merely to sift out applications where an objection would stand little chance of success.

I hope the House of Lords and the government will not introduce a health licensing objective – much less a “health and well-being” objective – and if you read the PHE guidance document you will see how often that word is insinuated into the text. The system we have works well as it is, and scarce resources need to be directed at those who really are drinking at unhealthy and damaging levels, not at making mischief through gratuitous objections to individual licence applications based on an objection to beverage alcohol as such, rather than any real local concerns.
Paul Chase is a director of CPL Training and a leading commentator on on-trade health and alcohol policy

Taking growth figures with a pinch of salt by Ann Elliott

I was reading an article in Propel the other day about yet another planned major site expansion from a relatively small casual dining chain and, as I was reading it, I was thinking, “You must be joking, who are you trying to kid?” That same day, a chief executive in the sector mentioned the same article to me and said: “Who on earth do they think will believe them?” That got us thinking about the times when people in the sector say one thing about growth but really mean something quite different. Here are the ones we picked up from reading a variety of press releases. 

The most common statement was around site expansion – eg: “We will grow to 200 sites in the next three years.” This crops up surprisingly frequently and we suspect originates from an ambitious business plan presented to an equally ambitious investor, which the operator has to continue to support even when it knows it’s not tenable or achievable. Sometimes the operator hasn’t even started to develop a site pipeline, has few sites on the ground already and has no expansion infrastructure – all of that makes its plans even more challenging, if not unachievable.

These exciting statements on rapid growth suggest a lack of a thought-through property strategy. I would much prefer to read about Bistrot Pierre’s careful and deliberately slow-paced expansion into unglamorous but highly successful locations one site at a time than I would want to read about, say, an Ed’s Easy Diner rush for sites. 

Those who have experienced fast growth understand the difficulties that growth presents and how easy it is to get it wrong. It’s not only about finding and acquiring the right properties – it’s also about finding, training and inspiring the right people. That’s the bigger task. Just last week another casual dining chief executive was telling me he was going to open five sites in London in the next 12 months, but had absolutely no idea how he was going to find 25 fantastic managers/deputy managers in the current environment. He was very worried indeed. 

The infrastructure to support growth has to be in place almost before expansion starts. That includes HR, internal communications, financial reporting, supply chain management, operations structures and customer communication along with a myriad of other considerations, none of which can be taken lightly. So, site growth figures, on the whole, have to be taken with a pinch of salt. One day, when I have lots of time on my hands, I will compare what was said by certain companies with what was actually achieved.

Statements about sales performance also have to be approached with a degree of caution. We read lots of comments about “growth ahead of expectations”, “growth ahead of the market place” and “we are delighted with our performance”. The only sales figures I really believe are those measuring true (ie uninvested sites') like-for-like sales – although even these figures can often mask disposal of underperforming sites, which can make the overall picture more appealing than it really is. Total sales growth can include too many elements that muddy the water – refurbishments, extensions, new sites and even new company acquisitions. 

Ironically, often the companies that are growing the most say nothing. They reveal nothing. They get on and do their job. You don’t have to read between the lines because there are no lines to read between. They don’t network, they don’t present at conferences, and they don’t issue press releases. We all know who they are. And we all admire them. Their silence says more about them than the “exciting” words too often used by others.
Ann Elliott is chief executive of leading PR and marketing company Elliotts –

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