Propel Morning Briefing Mast HeadAccess Banner  
Propel Morning Briefing Mast Head Propel's LinkedIn LinkPaul's Twitter Link Paul's X Link

McCain Banner
Morning Briefing for pub, restaurant and food wervice operators

Fri 12th Jan 2024 - Friday Opinion
Subjects: Support your neighbourhood pub, the Breal deal, closing in January, attracting and retaining talent in the hospitality sector
Authors: Ann Elliott, Glynn Davis, Alastair Scott, Isabelle Shepherd

Support your neighbourhood pub by Ann Elliott

Despite it being close to freezing the night I wrote this, or perhaps because of it, the Duke of Wellington pub in Toynbee Street, London E1, was absolutely packed at 6pm, with hardly a spare seat to be found. It did not have an open fire, only served nuts, crisps and pork scratchings and accepted only credit card payments. Tips could be paid in cash though.



There seemed to be a sufficiency of friendly and efficient team members behind the bar, so never a queue to order a drink – “order and pay” was not an option. The pub stocked a satisfactory range of non-alcoholic drinks for those of us taking on Dry January. Music was kind and unobtrusive and the toilets were clean but unremarkable – nobody trying to teach their customers French, for instance, while they were spending a penny.



It was the sort of pub that you could stay in forever, adding seats to the table whenever they came available, and friends joined. It was a sociable, friendly, unpretentious, local feel pub not trying to prove a point to anyone. It reminded me of the pubs I used to go into when I worked in London – finish work at 6pm, walk to the nearest pub with the gang from work, spend three hours there, catch the latest tube home and then raid the fridge for whatever was left from the weekend if there hadn’t been an opportunity to buy a kebab on the walk home from the tube. It made me quite nostalgic for those times.



In contrast, driving through my nearest small town later that same night, I passed three pubs where I couldn't see a single solitary customer, and one pub that appeared closed – permanently, by the look of it. What would entice customers, on a night even colder than when I left London at 9pm, to venture out to their local pub? I just don’t know, to be honest. Certainly not the offer at the Duke of Wellington. Perhaps not even the prospect of gastro food, a warm fire and cash payments.



These tenants (I assume they are tenants) must absolutely despair. They would have cut labour, if they ever had any on a cold Thursday evening in January, to just themselves. They can’t afford a chef in the kitchen. Live music is but a pipe dream. Dominoes and darts won’t cut it. Sky is simply not on their horizon. They do not have any accommodation beyond their own. January can be such a cruel month for local, neighbourhood pubs.


Even more upsetting than the absence of any kind of business in town tonight was visiting our local wonderful food pub just before Christmas. It was full, busy and infused with the warm glow of pre-Christmas spirit. There was a jolly, anticipatory atmosphere of families and friends meeting up to celebrate the festive season.



I was enveloped in a hug by the owner the moment I stepped into this halcyon scene. He then whispered into my ear: “I think this will be my last Christmas here. Our electricity bill is £80,000 a year, and I just can’t afford that.” If he leaves, if the pub closes, then that village, and surrounding villages, will be left without a pub at all, never mind one that is as good as this. It will be devastating.



The contrast between these scenarios is stark. City centre pubs close to where people work are likely to be doing okay, even in January. Neighbourhood pubs, particularly independents (and I include tenancies in that definition), are likely to be struggling due to lack of customers, probably Monday through to Thursday, alongside crippling increases in costs that leave them unable to invest in attracting these customers back in. It’s a very sad scenario, and not the happy start to the new year you would wish on anyone.
Ann Elliott (she/her) is a portfolio non-executive director and board advisor

The Breal deal by Glynn Davis

Many years ago, my parents lived next door to a successful businessman who I befriended – Swiss-born Mario Halbeisen (RIP), who set up Marcrist Industries and was, for a period, the sole importer of diamond drill bits into the UK. He made a bit of a killing, and like many people with money burning a hole in their pockets, he decided to buy into property. When I questioned him why he’d bought a run-down house on a dodgy road near Doncaster town centre, he said it would not be dodgy for long because he planned to buy all the dilapidated houses on the road and initiate a turnaround in the street’s fortunes.
 
Mario’s strategy came to mind with the recent news that Breal Group had acquired yet another troubled brewery, with the £2m purchase of Purity Brewing that had been making losses in recent years and been on the sales block for the best part of a year. The likes of The Business Growth fund, among others, is unlikely to see anything back from its £7.5m investment in the business.  
 
This deal is part of an ongoing splurge by Breal on various distressed brewery businesses encompassing Black Sheep Brewery, Brew By Numbers and Brick Brewery, that were each acquired from their respective administrators. Such activity leaves me puzzled, because there is a lack of a precedent in successful roll-ups of breweries. In recent years we have seen the savvy Luke Johnson and his Risk Capital Partners have a go at such a play when it acquired Curious Brewery and then added Wild Beer Co. This was pretty short lived, and he recently sold the two businesses on to St Peter’s Brewery. 
 
New Zealand-based Lion also had a dabble in the space when it purchased Magic Rock and Fourpure breweries, which it ran alongside its Little Creatures brewery (which included a flash but soulless taproom in King’s Cross), but this gambit came to an end in late 2022 when it sold them on to Kent-based Odyssey Inns. 
 
Such deals only really stack-up if there are opportunities to drive efficiencies by consolidating the brewing processes – although Breal denied this is the case with Black Sheep when rumours of its closure circulated recently. But even then, you have to question why you’d buy the infrastructures when it’s really the brewery name and IP you are after. The real prize in such deals are channels to market – in the form of profitable pubs and the existing customer base. 
 
Beyond the taprooms of the breweries it has bought, there appears to be only modest tied profitable sales for Breal. It closed three of the four Black Sheep pubs having deemed them unviable. It has suggested that its brewing sales team across the UK can expand the market for the breweries in its ever-expanding portfolio. This is fair enough, but it’s a tough market out there, as the acquired breweries know all too well.
 
What Breal can also tap into is its growing presence in the restaurant and bars sector as it is also on a mission to hoover up distressed assets in this area. It has so far bought Vinoteca, D&D London and a couple of bars that it has brought into its growing Andrea chain. There is clearly an opportunity to sell its breweries’ beers in these outlets, but those volumes are certainly finite. And it does lead to the question of whether it needs quite so many brewing brands and beers. 
 
Undoubtedly, Breal has agreed financially sound acquisitions as it has been dealing with last-chance-saloon scenarios for the various breweries it has bought, but the puzzle of how it will turn them into sustainably profitable businesses remains something of a mystery to me. Mario’s strategy ultimately came good, but then when did good old freeholds ever let you down – regardless of whether we’re talking houses or pubs?
Glynn Davis is a leading commentator on retail trends

Closing in January by Alastair Scott

We have had several debates about whether we close our restaurants and bedrooms for a few days in January. This is a big decision for us as our philosophy is to be open all the time. It’s important that our customers know they can always turn up, so of course, this isn’t an action that we have decided to take lightly. 
 
We’ve weighed up the pros and cons, so I thought I would try and set out our logic. Let’s start by trying to calculate our profits and losses. Daily sales would be, say, £1,000 maximum, with a gross profit of around £700 (probably less when sales are low). Staff costs for the day, for three team members for 12 hours, are £540, and energy costs for the day are £150. 
 
Already, we’re at zero profit before we count variable consumables, operating costs and so on, which I think amount to around £600 a week, and therefore, truly variable costs are around £80 on these quiet days. I doubt we will even get to £1,000 for the day or manage to restrict it to one person front of house. Our break-even sales are probably around £1,200. The maths is easy – closing is the right financial option.
 
Closing for this period also presents an opportunity to tackle some of the difficult tasks to schedule in a normal week. Our list includes: re-flooring the bar, re-painting and re-tiling the toilets, stripping out the kitchen and doing a full deep clean, putting in new windows and cleaning and polishing hard floors. All of which are hard to do when we are open.
 
We are choosing to let the staff either take holiday or come in to help make the site look amazing – a real winter clean. I hope it will be fun and will energise the team, making them even more proud of the business they are part of.
 
Rather than closing both sites for the same period, we have decided to close one Monday to Thursday on one week, and the other Monday to Thursday the next, as we are only ten minutes apart. This way, we are still available to those who are wanting to go out, even if it comes with an extra few minutes in the car. 
 
Beyond all of this, the point of this article is to remind operators to calculate their daily marginal profit. It is a vital calculation that can help you make a decision in one of three directions. Either reduce your cost base so you can make money on quieter days, grow sales to get over your break-even, or close.
 
We can’t afford to invest all of our Christmas profit in January losses. Closing in January is the best decision for our business, and likely, many others. 
Alastair Scott is chief executive of S4labour and owner of Malvern Inns

Attracting and retaining talent in the hospitality sector by Isabelle Shepherd

The hospitality sector has been facing a staffing crisis for more than three years now, and the shortage of workers, which will be amplified by the upcoming changes to the immigration system, is driving up payroll costs. The autumn statement announcement that the national living wage will increase by a further 9.8%, which equates to more than £1,800 a year for a full-time worker over the age of 21, will only add to the burden. 
 
To minimise staff churn and retain their best people, businesses are having to consider new ways to approach retention beyond just a competitive salary. Benefit packages are typically a good place to start. 
 
An underused benefit is the use of pension salary exchange. This can be very valuable for workers paid above the national minimum wage who make pension contributions. It creates National Insurance (NI) savings for the employee, with little effort on the employer’s part once the scheme is set up. Employee pension contributions are typically deducted from net pay (after PAYE and NI) and then passed to the pension provider.
 
For an employee who commits to pension salary exchange, their salary is reduced by an amount equivalent to their pension contributions and their employer pays this amount to the pension provider, as an employer only contribution alongside their own committed pension contribution. This results in savings to the employer and the employee on National Insurance as the employee’s salary – calculated on the reduced salary amount after the pension salary exchange – is lower. Some employers opt to pass on some of their NI savings to the employee, making it an even more attractive benefit. Alternatively, it can be retained in the business to ease cash flow. 
 
A scheme like this is attractive to employees as it can increase their take home pay. Once a pension salary exchange scheme is set up, it is a straightforward process each month to maintain. Communication can be key as employees can sometimes think it is too complicated, or that it would affect their creditworthiness, which is not the case. The only significant downside is that the amount of salary exchanged for pension cannot lead to the salary falling below the national minimum wage threshold, which means it will only apply to higher paid workers.
 
Other things to watch out for are reduced life insurance, if this is offered as a benefit, as it’s calculated on the salary after the pension exchange, while statutory maternity/paternity pay, statutory sick pay and state pensions could be affected if the exchange brings the salary down below the level at which NI is paid.
 
More typical benefits such as tronc schemes and discounts on food and drink remain common, but we are starting to see employers offer benefits with a health and well-being focus as well. The fast paced and intense work environment for those in the sector, along with the expectations of Generation Z workers, can mean packages with a focus on well-being are attractive to the next generation of employees.
 
They can also have the added benefit of reducing sick leave. Generation Z have very different demands to their predecessors, and it will be interesting to see how their expectations impact what business offer employees in the future. For businesses looking to expand their benefits offering, it’s important to ensure taxable benefits are treated correctly, and it’s always worth exploring options to ensure any schemes are as tax efficient as possible for both the employee and employer.
 
Looking to the future, it is hard to predict when labour shortages and payroll cost pressures will begin to subside. However, with the immigration changes in the pipeline and the increase to national minimum wage due in three months’ time, this seems some way off. Benefits schemes can’t resolve these issues, but they can play a small part in overall staff retention.
 
It seems likely that without further government support for the sector, we will continue to see high levels of closures (particularly of independent restaurant groups) like those announced so far in 2024, with labour costs and shortages being a key contributing factor to their demise. 
Isabelle Shepherd is a director at hospitality specialist accountants and tax advisors haysmacintyre

Return to Archive Click Here to Return to the Archive Listing
 
Punch Taverns Link
Return to Archive Click Here to Return to the Archive Listing
Propel Premium
 
Square Kiosk Banner
 
Strong Roots Banner
 
Access Banner
 
Hall and Woodhouse Banner
 
SetMenu Banner
 
Testo Banner
 
Contract Furniture Group Banner
 
Nory Banner
 
Tenzo Banner
 
Propel Banner
 
Sona Banner
 
Zonal Banner
 
Christie & Co Banner
 
Venners Banner
 
Airship – Toggle Banner
 
Bums on Seats Group Banner
 
Wireless Social Banner
 
Startle Banner
 
CACI Banner
 
Meaningful Vision Banner
 
Beyond the Bean Banner
 
Growth Kitchen Banner
 
Zonal Banner
 
Purple Story Banner
 
HGEM Banner
 
Accurise Banner