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Time to get the drinks in - How will pubs, bars and restaurants emerge out of lockdown? (Market Recovery Monitor Issue 1)

Boris Johnson’s signal that pubs, bars and restaurants could potentially open from 4 July (health conditions permitting) was the first chink of light in the recovery programme for pub, bar and restaurant operators that have been forcibly closed for over two months.

However, before the (increasingly hungry and thirsty) great British public get too excited about having a well earned pint or meal at their local pub or restaurant, it is important to consider what the shape of the re-opening programme could look like.

While fast food and food-to-go operators are better placed to embrace online delivery and begin to emerge from the lockdown (and some enterprising pub landlords have also been selling beer to go), the outlook is less straightforward for restaurants and pubs. Many are working hard to consider how best to operate under social distancing requirements (a 75 page dossier was recently submitted to the Government by UKHospitality with suggested operating measures) whilst maintaining the core of their offer and, critically, still turn a profit. Embracing online delivery may be critical to keeping brands at front of customer’s minds, which can be seen by the recent forays into the delivery sector by pub operators.

AlixPartners’ Market Recovery Monitor (previously named the Market Growth Monitor) tracks the trend in the number of licensed premises across the UK. Our data shows that as at 30 March 2020 – immediately following the lockdown – there were 115,000 pubs, bars, restaurants and hotels in the UK. This number was declining by 2.4% YoY even before COVID-19, the pandemic clearly adds a significant further challenge.

The shape of the recovery and site re-openings is not straightforward and will be affected by many factors:

Consumer sentiment: 

  • The level of demand for pubs, bars and restaurants post COVID-19 remains highly uncertain, in particular how long it will take consumers to become comfortable going out for a meal or a drink. Whilst younger consumers may be less risk averse, it may take some time for people to re-adjust to eating or drinking out as a normal part of life.
  • Also, some people will simply now be less inclined to eat or drink out than they were before. Earlier this month AlixPartners surveyed 1,000 UK consumers, and a third indicated that they plan to eat or drink out less than before the lockdown. It will take some time for the industry to assess whether there has been a structural decline in the level of demand, and if so, how much.
  • Operators have a cautious view on the scale of the recovery, with a third of senior executives in the sector surveyed anticipating the need for permanent closures of part of their estate, as demand in these locations may never recover to a level that enables the business to turn a profit.

Ownership structure:

  • Our data shows that two thirds of UK licensed premises are independent operators with single units – local pubs, bars or restaurants, that do not have the benefits of scale or financial backing to absorb costs. However, the local public may be tempted to provide their business to local independents to help them survive, rather than using national brands.
  • Conversely, national chains potentially have the scale and financial backing to weather the storm and invest in their state to re-open with a bang. JD Wetherspoon recently announced it would spend £11 million across its 867 pubs to ensure all of its sites can open this summer – typically bold move.

Site locations:

  • In our view, types of locations are also critical to assessing the shape of the recovery.
  • In order to comply with social distancing measures, we would expect sites in rural and suburban areas to open before sites in densely populated areas, business districts, shopping centres and travel hubs.
  • Operators with outside space, terraces or a strong delivery offer, are those that are more likely to be able to make sites work during the earlier stage of the post COVID-19 recovery.

Cost to re-open

  • It is also important to note that re-opening a site after two months of closure is not a straightforward exercise, and has substantial costs involved.
  • Logistical challenges such as training staff to comply with new ways of operating, conducting necessary repairs and obtaining health and safety clearance will need to be thought about in advance, as well as the cash costs of any capital investment and payments to suppliers to re-stock.
  • Considering the return on investment of these re-opening costs, alongside the likely shape of the business from a trading perspective, is critical.

In summary, restarting a business in a market with uncertain demand levels is highly challenging, and the optimal approach will be different for each business. So whilst many of us will be counting down to 4 July to be able to enjoy a beer in our local, don’t be to disappointed if that particular business has elected to phase its opening programme and keep its doors on this site closed for a little while longer, as it may enable the business to continue trading in the years to come.

We will be tracking the industry as it re-opens through monthly releases of Market Recovery Monitor. It will be interesting to see how this all plays out. 

The shape and recovery of site re-openings is not straightforward and will be affected by many factors

Tags

restaurants, leisure, pubs, covid-19, mrm
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