Pubs and Restaurants need to manage costs and uneven demand to make a success of post-lockdown reopening

Pubs and Restaurants need to manage costs and uneven demand to make a success of post-lockdown reopening

In the weeks since the first set of restrictions were lifted in England, pubs and restaurants have been welcoming customers back in outdoor settings.

During this time, the press has widely reported the release of pent-up demand which, despite some unseasonable weather, has filled beer gardens and high streets with eager punters. This has had an impact across the supply chain with many brewers, from the multinationals through to local craft producers, already applying order limits to ensure reduced supplies can be sustained throughout the summer months. It’s a far cry from just a few months ago when the contents of beer cellars were being poured down drains for the second time in less than twelve months. Whilst the initial reopening has been largely seen as a success, the picture on the ground is more nuanced, with clear winners and losers. It’s also unclear at this stage whether the initial enthusiasm to return to the pub or dine out will be sustained through the summer months. Pub and restaurant operators need to be mindful of potential pitfalls in order to make the most of any post-lockdown bounce.

A good start, but challenges remain
Although images of overflowing beer gardens depict a sector in rude health, the FT recently reported that only 40% of the UK’s 37,500 pubs were able to reopen from April 2021, with many restaurants still closed or providing takeaway only service. In most cases this is due to either insufficient outdoor space, or where passing trade has reduced drastically e.g. at transport or employment hubs.

Those that are already open and appear busy are not necessarily generating significant returns, as new COVID-related overheads and capacity limits place pressure on the bottom line. Custom remains highly weather-dependent, resulting in uneven and unpredictable trade. The requirement for customers in many places to book tables and place deposits is a further deterrent to spontaneous get-togethers and regular custom.

For the sites that are mostly or totally indoors, the costs of reopening and operating with social distancing measures will be significant. With continued transmission and risk of new COVID-19 variants, it’s likely that a proportion of customers may still feel anxious about visiting relatively crowded indoor environments. This may be particularly prevalent in more cramped sites, or where alcohol may impact on the ability or willingness of patrons to ‘social distance’ effectively. Demand will be slower to return to these locations, whilst staffing and operating costs remain.

It therefore comes as little surprise that the British Beer & Pub Association anticipate around 2,000 pubs, or 5% of the total, will remain closed in the weeks ahead. Drinks sales are expected to be around 65% of pre-pandemic levels, below the break-even level for many operators.

Winners and losers
Of course, no two sites are quite the same and each will face their own challenges and opportunities during the remainder of 2021.

Those in city centres, relying principally on office workers or international visitors, are likely to continue to find trade challenging due to the prolonged (and potentially permanent) shift to hybrid working and domestic tourism, as well as higher property costs. By contrast, we anticipate that some suburban locations – many of which have struggled in recent years - might find themselves enjoying something of a renaissance as customers choose to socialise locally. Country pubs and restaurants are likely to find a boom in UK staycations will supercharge their trade, with managing demand potentially the biggest challenge through the summer months.

These are, however, very broad groupings and the impact on sites will vary dramatically from place-to-place. Pubs and restaurants that have invested in their proposition, maintain a reputation for good value, and can ensure a safe environment for patrons are more likely to outperform their neighbours.

For those in more difficult locations, liquidity and working capital problems are likely to come to a head. This is especially true for those who entered the pandemic on a difficult financial footing. Operators must invest a significant amount to open their doors, especially if food plays a material part of the offering, whilst the volume of trade is dependent on a vast array of factors outside operators’ control.

As the summer months roll by, an increase in VAT rates to 12.5% will join the repayment of rent arrears and CBILS loans as further cash outflows. At the same time, the Job Retention Scheme is set to come to a close, creating the potential to dampen customer demand going into the autumn. Monitoring trade over the summer and taking a prudent approach to cash forecasting is going to be critical to help manage liquidity requirements and take necessary early action.

It’s worth mentioning that recruitment is also an issue facing many operators. The combined effects of the pandemic and Brexit has caused a skill shortage across the sector, with the number of vacancies increasing dramatically, particularly in back-of-house roles.

How can Interpath help?
At Interpath we have a team of sector experts based across the UK. With extensive experience within the pubs and restaurants sector we can help clients respond quickly to sudden liquidity challenges and identify opportunities to enhance working capital and operational resilience.

We also have experience in running strategy days where we can help you map out your future and navigate the correct pathway for your business.

If you would like to discuss the ways in which we could assist you in more detail, please get in touch with one of our sector specialists.