What is the right set-up for the times ahead?

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When trading times are tough, there is always one question at the forefront of licensees' minds - when will things get better? With May's bank...

When trading times are tough, there is always one question at the forefront of licensees' minds - when will things get better?

With May's bank holidays and Easter now a distant memory and the England football team recently visiting the Caribbean rather than the training camp, the crystal ball is somewhat clouded.

No-one is predicting a quick turnaround. Discretionary spend is under pressure and the costs of running pubs are ever-increasing, with food, drink and energy to name just a few seeing above inflation rises.

So what does the right set-up look like to ride out the current market conditions? Is it food, accommodation, entertainment, the customer service experience or something else?

The list is endless and depending on size, location and competition, all licensees will have a formula that they passionately believe will work.

We have seen numerous operators reporting numbers, ideas and initiatives around these areas Marston's results revealed a 7.8 per cent increase in like-for-like food sales and it is looking to invest £50m in adding rooms; Bar Sport has been doing themed music nights and the Folly Inn at Towcester has been looking at hot drinks to supplement the existing income streams.

What makes a pub? The fabric of the place or the licensee and their team? Examples of community service and spirit often go unreported; such are acts of real heroism by licensees where other traditional services are falling by the wayside.

All of these facets will go into the mix to produce an offer to the area in which the pub operates - it is the mix that will make the difference, so that the experience the paying public receives is so outstanding that they won't be a one-time visitor but will go back time and time again.

Fluffy stuff, I hear you cry. But it is the offering that has got to be right and you then turn to the numbers. The key in current market conditions for any business is liquidity, and the licensed trade is no different.

As a nation we aren't very good at saving, and businesses are just the same. Businesses with cash have options; cash buys time and time gives businesses the chance to react to market conditions.

One positive is that cash comes across the counter when the pint is served. Yes, customers have got to visit (back to the offer) but pubs don't have to wait for their money.

Getting a grip on cash is a good strategy and requires focusing on the areas of the business where it is spent and where the cash is tied up. Explore how cash can be released to provide liquidity for working capital needs, future investment or refurbishment.

If investment is required to change the mix, what is the amount of return and when? Projects always cost more and always take longer to complete.

Pubs with debt will succeed if the pub has time to produce enough cash profit to repay any borrowing. Cashflow-to-debt service cover of 1.25x is a minimum and if the numbers look tight, then look again at the project.

There are no straightforward answers to the big question that every licensee in the country is grappling with; yet good operators know intuitively what their customers want and, while it may seem basic, offer, team and cash will form the basis of the right set-up.

I wish you good trading in the coming weeks.

Mark Kenyon is head of licensed trade, Barclays Commercial Bank

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