As reported by The Morning Advertiser (The MA) in August, the UK economy slipped into technical recession after suffering its biggest slump on record as a knock-on effect of the Covid-19 pandemic.
The economy shrank by a fifth (20.4%) versus the first three months of the year during April, May and June as a result of factors including a drop-off in household spending in shops and hospitality venues, which were shuttered by Prime Minister Boris Johnson on 20 March for a total of 105 days, 15 weeks or 28.69% of 2020, before sites were allowed to reopen from 4 July.
During that time, one-off cash grants for hospitality venues with a rateable value less than £51,000 cost the Government £882m, according to real estate advisor Altus Group as Johnson and co attempted to back ailing businesses.
“The fact the economy slipped into recession isn’t surprising, as hospitality and many other businesses have been placed into hibernation during the lockdown,” Stephen Owens, managing director – pubs and restaurants at specialist property adviser Christie & Co explains.
“The widespread Government support over recent months has enabled most operators to batten down the hatches until they could focus on reopening.”
However, the latest CGA Business Confidence Survey revealed that just 36% of multiple operators are predicting life after lockdown for all of their venues.
Post-lockdown pubs
Owens adds that as Government sheathes support measures for industries such as hospitality there will inevitably be knock on effects for affected businesses in the current climate.
“As the Coronavirus Job Retention Scheme (CJRS) winds down and the country is weaned off various other temporary support measures, the economy is bound to react; we have already seen a number of redundancies across the industry,” he continues.
“The positive impact of the schemes, such as the Eat out to Help Out initiative, which has undoubtedly encouraged customers back into hospitality premises, may be tempered by consumers acting cautiously in light of concerns over the wider economy and what this might mean for discretionary spending.”
However, Owens adds that Britain’s current reluctance to splash out on overseas holidays combined with the shifting sands of international travel could see this pandemic parsimony work in hospitality’s favour for the time being and be a boon to some pub and bar operators.
“With uncertainty and concerns over international travel, the UK leisure and tourism will be a beneficiary and we are already seeing an increasing trend for short and long terms breaks in seaside and tourist location, driving hospitality business in these areas,” he says.
“Business in city centres remains challenging,” he counters, however, “with many office workers still working from home and suggestions of a more structural shift in working patterns which may well see lasting benefits for community-based hospitality businesses in residential areas.
“We are also seeing people using hospitality premises at differing parts of the day, with the strongest trading early in the week and early evenings becoming the most popular.”
Robert Hayton, head of UK business rates at Altus Group argues pub sector stakeholders will have a more detailed image of the recovering on-trade against the recession backdrop following the business rates reset in April 2021.
“Through Government intervention, the next reset of business rates will now be based upon fair maintainable trade on 1 April next year,” he says. “We will then have a fuller and clearer picture of trading conditions for the licensed trade.
“Had future business rates liabilities been assessed from 2019 levels of trade, not taking into account the devastating effects of the last six months, this would have compounded the difficulties pubs now face through diminished trade saddling them with higher tax bills in the longer term.
“With the business rates holiday set to end next year, and the impacts of Covid-19 on the licensed trade already obvious arising from the national restrictive measures introduced to counter the pandemic, grounds exist to support substantial and prolonged reductions in rateable value until the next revaluation in 2023.”
Then and now: what happened last time?
Eleven years have passed since Britain officially entered its last recession on 23 January 2009, when the Office for National Statistics reported the economy had shrunk through the last two quarters of 2008.
Britain's economy finally exited its deepest slump since the 1930s in the fourth quarter of 2009, growing by 0.1% compared to the previous quarter, but not before it had reshaped Britain’s on-trade.
Increase in tenanted pub applications: Speaking in June 2009, a number of regional brewers said applications for tenanted pubs rose sharply since the start of the year — with increased redundancies as a result of the recession seen as a contributing factor.
Charles Wells Pub Company, now Wells & Co, for example said that the number of new applicants jumped 51% year-on-year for the period from 1 January to 31 May.
What’s more, representative from Marston’s and Fuller’s both outlined a rush of new apllicants while then Young's Pub Company retail director, Patrick Dardis, said: "there is certainly more interest. We're also getting a lot of hits on our website looking into training."
Amid the ongoing Covid-19 crisis, a number of nationwide pub operators have told The MA, current conditions have led to a spike in job applications at their sites.
Brewpub operator Brewhouse & Kitchen, for example, received hundreds of applications for a trio of managerial vacancies after Boris Johnson called last orders in pubs on 20 March.
“For one of our sites we had over 200 applications for the role and had to shortlist it down to 70, the calibre was very very high,” chief executive Kris Gumbrell said.
Additionally, a spokesperson for Birmingham-based operator Mitchells & Butlers said: “In July we noticed, on average, a fourfold increase in applications for advertised front of house roles.
“For example, a bar staff role for All Bar One in Liverpool attracted more than 500 applications. We’ve also seen similar significant increases in applications for our management and back of house roles.”
The reveal of these figures followed news that a south London pub operator recently received 484 applications for two £9-an-hour bar jobs – including interest from former air stewards, restaurant managers and shop workers made redundant amid the pandemic.
Staff cuts: However, according to CGA research revealed at The MA’s Tenanted Trade Summit in June 2010, tenants were forced to shed staff during the previous recession as licensees found the recession to hit harder than expected.
The survey found 58% of tenants cut back on staff as a result of the downturn, compared to 31% in a similar survey the year prior.
Of those tenants who shed staff, 87% lost one or two people, 11% got rid of three or four people while one in 50 lost five or more employees.
Pub closures hit 52 per week: As reported by The MA in July 2009, pub closure rates increased by one third in six months to 52 per week during the last recession.
CGA figures released by the British Beer & Pub Association (BBPA) found that 2,377 pubs closed in the 12 months prior costing the Government more than £254m in lost taxes.
"The recession is proving extremely tough for Britain's pubs," then BBPA chief executive David Long said. "However, these pressures have been made much worse by a Government that has continued to pile on tax and regulatory burdens.”
This year, however, pub closure data reveals that the number of pubs in England and Wales calling last orders in the first half of 2020 remained flat year-on-year, despite their enforced closure.
According to commercial real estate advisory firm, Altus Group, pub closures in England and Wales “stabilised” between 25 December 2019 and 25 June 2020, with 228 sites shuttered compared to 235 for the same period in 2019.
The real estate advisor also found that the overall number of pubs in England and Wales now stands at 40,835 – a drop of 466 versus the same period in 2019 meaning that, on average, nearly nine pubs have closed per week in the past 12 months.
Publicans diversifying their business: According to a survey of British Institute of Innkeeping members in November 2009, the vast majority (94%) of licensees tried new ideas to boost their bottom line amid recession.
Adding meal deals was the most popular new service back in 2009 – 70% of respondents did so – while providing a takeaway service (34%) and breakfast (12%) also proved popular.
This reflects current trading conditions which have seen more than 50,000 pubs, bars and restaurants registering for the Government-backed Eat Out to Help Out (EOTHO) scheme ahead of its launch on 3 August.
The scheme saw 100m meals eventually claimed in 13 eligible days with groups including Star Pubs & Bars, Oakman Inns and Arc Inspirations funding their own equivalent discounts throughout September.
Other popular recession-busting ideas in 2009 included expanded Wi-Fi access (50%), activity nights such as quizzes and book clubs (38%), offering room hire (32%), hosting weddings (28%) and staging video game events (24%).
The survey also found most licensees invested relatively modest amounts on their new ideas, with around half (52%) paying under £1,000.
What’s more, according to CGA research revealed at The MA’s Tenanted Trade Summit in June 2010, the recession saw an increase in pubs showing live sport (13% to 46%), live music or other entertainment (32% to 46%), and special events or links to food (74% to 79%).
Investors sought to capitalise on low freehold pub prices: According to reports in November 2009, venture capitalists sought to take advantage of low prices in the freehold pub market during the last recession.
Pub property values plummeted 20% in 2009, compared to 11.6% in 2008 according to Christie & Co's Business Outlook report from that year.
Graham Allman of GA-Select, who had been instructed to find a package of 10 freeholds in North and West Yorkshire and a number of other freeholds across the East Midlands for venture capital backed clients said the freehouse market had “bottomed out" in 2009.
"It is attracting investors because prices are low and the returns can be high if you get it right,” he continued. “Both these groups have pub people on board to provide that experience and makes sure they do get it right.
“There is not a massive rush to market for freehouses like the last recession as interest rates have remained so low but what is becoming available is sensibly priced."
As recently reported by The MA, Christie & Co’s new Buyer Registration Index showed a 64% increase in buyer registrations for pubs since the initial easing of lockdown restrictions
Pubco profits hit: – Financial results revealed at the end of 2009 found that pub operators such as Marston’s suffered as a result of the last recession.
Operating profit at the brewer and pub operator fell by 5.7% to £147.4m for the year to 3 October 2009, reflecting a weaker performance from its tenanted pubs.
Overall, sales were 1.4% down year-on-year at £645.1m while total revenue across its pub estate fell 3.9% to £175.8m, reflecting reduced volumes sold to tenants and lessees.
“The economic recession has had a polarising effect on the performances of pubs and has accelerated existing market trends, contributing to a sharp decline in profits in the weakest 20% of pubs in the estate,” chief executive Ralph Findlay said at the time.
Fewer pub rent reviews: The last economic downturn meant a slowdown in the number of rent reviews being carried out according to Fleurets’ annual rental survey in August 2010.
Tough economic times also led to a "general downward pressure on rents," according to David Sutcliffe, then director of the leisure property specialist.
Sutcliffe said there had been "relatively few" new lettings of freehouses and high street bars, along with a "significant decline" in rent review activity, as landlords realised the "limited opportunity for rental growth".
"Landlords aren't actioning rent reviews, or if they are it's being quite contentious and therefore many haven't been settled," he said.
Sea change in “value” food market: The last recession changed consumer attitudes to dining out forever, according to Paul Flaum then Whitbread managing director of restaurants.
Speaking to The MA in December 2012, Flaum said people will continue looking for value when eating out, even when the economy recovers.
"The recession has changed consumers for good," he said. "Food culture in the UK is growing and people want to eat out more, but are struggling through lack of disposable income, so they look to the value end of the market. The pub-restaurant sector offers so much value and the volume of people choosing it will continue to grow. There is an opportunity for chains and brands to grow and get even better.
"The customer really perceives value; it’s very important in today’s market."
Again, this perhaps strikes a chord with today’s operators in light of the success of the Government-backed EOTHO scheme.
Very different ‘dynamics’
Reflecting on the current downturn, while UKHosptality chief executive Kate Nicholls states that “obviously it is not good news but neither is it surprising given the past few months”, she argues that conditions in 2020 differ significantly from the last recession.
“It is different this time as we are only just emerging from three months’ worth of forced closures, with the possibility of more on the horizon,” she says.
Christie & Co’s Owens concurs that there are “very different dynamics at play” compared to the last financial crisis.
“A much sharper decline and recovery may well be likely and much of the Government support has been aimed at ensuring businesses survive and that employees and consumers are protected as much as possible, all of which should be positive for the pub and hospitality sectors,” he explains.
“How much of the behavioural change we have seen is likely to remain permanent is probably as much to do with a successful vaccine being widely available as it is on direct economic factors, although the two are inextricably linked.
“However, history does provide a few clues. Pubs have been through many a downturn and doggedly survived, whilst restaurants rise and fall like the waves, but always come back for more."