Dancing to a new tune

The PMA Team looks at how the nightclub sector has fared in the new licensing regime

There's no doubt that the nightclub sector has had an extraordinarily tough year in the wake of licensing reform. The late-night battlefield is already strewn with casualties. The Nightclub Company went into receivership at the end of last year. This year, Entrepreneurial Leisure, owner of the Heaven and Hell nightclub chain and Barvest, the operator of the Po Na Na chain, followed suit. In both of the latter cases, receivership allowed management to leave the poorly-performing sites behind as new companies rose Pheonix-like from the ashes.

For the rest of the sector the new licensing regime has produced one over-riding problem: more competition. Many more pubs have been allowed to open later, meaning customers have more options for drinking post-11pm. At the same time, nightclubs, like the rest of the high street sector, have had to impose the most rigorous door-checking systems they can think of.

When an operator has invested many millions of pounds opening a nightclub, the stakes on licence revocation are higher than most.

Nottingham police, with help from magistrates in the City, made an example of The Nightclub Company's Works venue last year when it had its licence revoked for, amongst other things, serving underage drinkers. The move must have sent a shiver down the spine of each and every nightclub owner sitting on leasehold sites that have seen millions in investment.

Dropping sales

Nightclub companies, both publicly-listed and privately-owned, have been reporting falling sales throughout the year. Operators suggest trade has dropped in the region of 5% to 10%, with a large element of this linked directly to the shedding of the trade's underage element.

"Two years-ago the trade simply didn't have the door regime in place that it has now," says one nightclub operator. The high street sector as a whole has struggled to maintain sales, with the value-based operators virtually alone in enjoying growth. Fewer nightclubs than expected have seen any advantage in opening later themselves whereas a high street operator like JD Wetherspoon has been able to open earlier to serve breakfasts and open an hour or so later where it makes sense to do so.

Nightclub bosses report that their customers are arriving later and with more alcohol inside them. Arrival time seems to average around an hour later than during the pre-reform era.

"My managers have had to be more interventionist on the door than in the past because customers seem to have more to drink before they arrive at the door as a result of spending more time on the circuit," says one nightclub boss.

If pre-legal drinkers have been shaken

loose by the new and stricter age-checking regimes that are now in place, some

nightclub companies have noticed another lost tranche of customers - the "old gits".

Spending £5 or £10 on door entry was the only option available to many middle-aged drinkers prior to reform. "We've all been there - desperate for a drink," says Ultimate Leisure boss Mark Jones. "Now the late-night dance market is the preserve of young people."

Some nightclub owners have noticed a greater emphasis on Saturday night as the big night out, with a weakening on Friday nights. "Everybody is talking about how Saturday night is the night you simply have to trade well on," says Bob Senior, formerly chief executive of Ultimate but now running Utopian Leisure. Paul Mackings, managing director of Vimac Leisure, reports that trade is down 10% at his nightclubs since November last year, with 90% of the drop directly attributable to Friday evenings.

He does, however, believe that some of the lost Friday-night trade is transferring across to Sunday night. On the whole, though, he believes "customers are definitely coming to us later" in the evening and that there's "definitely a downturn in the numbers crossing our threshold".

Scores on the doors

Some observers wondered whether the traditional door charge would survive in the new regime. The reality is that differentiated nightclubs of a decent size, offering high-quality entertainment and facilities, are still earning sizeable door takes. But Mackings reports that average door take per person has dropped from £6 pre-reform to £4 post-reform.

"We're not charging the door prices we were 12 months ago," he says. "But we haven't lost this source of revenue all together - we're just having to put on offers to get customers to come a bit earlier than they might otherwise."

Another major nightclub operator is claiming a rise in door income after reform because customers are arriving later and missing the discounted entry windows.

The new regime has also seen a new muscularity from local authorities, the police and others on a range of issues. Senior, for example, has found police blocking his attempts to charge £5 on the door of his Sam Jack's venue in Newcastle from 12.30 onwards - police cited a wish to reduce the amount of bar-to-bar migration going on later at night.

So which types of nightclubs and operators have fared best in the Brave New World of reform? Among the factors that determine the degree to which a nightclub's sales have cratered or not are: wow factor, levels of recent investment, the amount of local competition, quality of entertainment, the ability to find fresh markets and trade before 11pm, and marketing prowess.

Take Novus, the company that was known as Urbium before it was taken private by Electra Partners, it has powered through the challenges of reform. Although it's best-known as an operator of nightclubs and late-licence bars, its like-for-sales are surging forward by around 8%. Admittedly its exposure to the booming West End and City of London markets has helped, but it's also a business that has side-stepped the dangers of a purely post-11pm customer base - 35% to 40% of its entire business comes from pre-booked corporate events.

Those nightclubs that were a little faded at the point of reform, poorly positioned within the circuit, or reliant on a partial monopoly to charge door prices that were resented by their customers are likely to have be done less well.

Overall, the sector's mood can perhaps be summed up best by the words of Senior: "Everybody I know feels like troops in

the trenches - the bureaucracy and regulatory interference is intense. We're picked-on, picked-on, picked-on - and it's not getting

any better."