Trade demands clarity on reopening after second lockdown

By Nikkie Thatcher

- Last updated on GMT

Industry response: UKH boss Kate Nicholls and Marston's head Ralph Findlay answered questions about the trade and the impact of coronavirus
Industry response: UKH boss Kate Nicholls and Marston's head Ralph Findlay answered questions about the trade and the impact of coronavirus

Related tags: Legislation, Government, Marston's pub company, ukhospitality

Hospitality industry leaders have called on the Government to outline a post-lockdown roadmap for business operators in order to help them navigate eased restrictions next month (December).

UKHospitality (UKH) chief executive Kate Nicholls and Marston’s chief executive Ralph Findlay appeared in front of the Department for Business, Energy and Industrial Strategy (BEIS) yesterday (Tuesday 17 November) with a number of other company bosses.

Company bosses who appeared in front of the committee:

  • Helen Dickinson – chief executive of the British Retail Consortium
  • Mike Cherry – national chair of Federation of Small Businesses
  • Kate Nicholls – chief executive of UKHospitality
  • Ralph Findlay – chief executive of Marston’s
  • Humphrey Cobbold – chief executive of PureGym

Nicholls laid out how the trade had been impacted by restrictions since the first enforced closure in March.

“You have to go back quite a considerable period of time for hospitality to have been without significant restrictions," she said.

“The key point is our businesses never really came out of restrictions in July. We were allowed to reopen but we had significant controls – social distancing, additional control measures around groups of six – which meant we never got above breakeven before we had a return to national restrictions in September.

“You’ve got three phases really of successive increases in restrictions in hospitality, in mid-September when we had curfew, face coverings, table service, that reduces revenues by about a third. A further wipe off of a third as you move into the tier restrictions, closures and a ban on mixed households socialising.

“Then a 45% drop in revenues as we went into national lockdown. That means we are back at 66% fall in revenue so our revenue is down by about a third. They were at minus 75% when we reopened in July and the best we got to was minus 15% for the sector as whole at the end of August, beginning of September."

The sector had not gone about break even since reopening in July and there has been a steady decline in revenue since September, Nicholls added.

“That’s important because it means our businesses going into this second lockdown are in a far less resilient place than they were in the first lockdown therefore, they’ve got depleted capital reserves, they are going through a terrific amount of cash burn while they are closed," she said.

“We estimate that is about half a billion just in November that the businesses are going through, just to remain closed in November.

“Just to put it in context, as we came out of 2019, hospitality was the third largest employer in the UK with 3.2m people, we had £130bn turnover and were forecast to grow 5% year on year and generate one in six net new jobs.

“At the end of Q3, before we have all these successive lockdowns, our employment numbers were down 20%, we had lost 660,000 jobs in hospitality over the course of this year, before we go into national restrictions, our turnover had fallen to 40% to just £80bn and we had lost all of our foreign export earnings in terms of international tourism.

“Going from a positive plus five annualised growth rate, we are now down at minus 40% annualised growth rate.”

She also emphasised how important the period between October and December is to the industry and how much the second lockdown will impact businesses.

“As you come out of Q3, go into those national restrictions, what should have been our golden quarter, 40% of revenues earned between Halloween and New Year’s Eve and 20% on average, of profits earned in December, you can see hospitality has gone from a pretty precarious position at the end of Q3 to back into intensive care in Q4 as we come through this," Nicholls said.

“That’s why the national lockdown second time around is going to be much more significant for our businesses.

“It’s imperative it is time limited that we have an ability for as much of the economy and as much of the sector to open with as few restrictions as are necessary to protect public health to allow these businesses to gain some income in December, which is such a critical month and to be able to help the country socialise safely in what will be a challenging time period.

“Also to help us get into that position for growth and recovery once past April and the anticipated recovery starts.”

BEIS member Mark Jenkinson said he was keen to understand how regional tired restrictions following by the second lockdown have impacted businesses.

He asked how far do local restrictions grants go to address some of that and what measures, if any have been taken to remain solvent.

In response, Marston's Ralph Findlay said: “We have 1,300 pubs in England, 800 of those were in tier one at the end of October, 250 in tier two, 250 in tier three. It was a it of a daily moving feast.

“In Wales, at the end of October we had 100 pubs, which were closed. Scotland we had 21. Those 21 in Scotland we are talking about £2m to £3m investments, each one employing somewhere in region of 50 to 60 people so they are quite sizable and significant businesses.

“The numbers are at the upper end of what you will hear in the sector, bad though they are. They operate primarily because we are suburban business, not in city centres, not in London, to any great extend and those by the worst affected.”

Sales impact

He then went on to outline exactly how the restrictions impacted Marston’s when it came to year-on-year sales.

“Our business, up to the end of September with guidelines and restrictions in place at that time, I was running at about minus 10% year on year, that was better than I had expected it to be," Findlay added.

“We then went into the introduction of NHS Test & Trace, similar in Scotland, rule of six, table service, use of masks in pubs by staff and customers, and the curfew of 10pm, which in practice means last orders at 9.15pm to 9.30pm.

“For me, those reduced sales again on average by about a further 10%. There was no one single thing I could point to within that, I could try and break it down but as much as anything, what it did was to deflate consumer confidence.

“We then had to tier one, tier two, tier three restrictions. As we moved into tier two, it was about a further 10% reduction in like-for-like sales and then as we moved into tier three, again another 10% reduction.

“In tier three, you were 100% down, if you were open, you were probably at the better end, 40% down, if you were a city centre bar in any of those scenarios, you were probably somewhere between 50% and 90% down year on year.

“Our cash burn rate was running at about £4m a week, that’s includes net of all Government assistance and we’ve got about 10,000 people on furlough.”

Answering the question about the level of Government support received, Findlay laid out the pros and cons.

“In terms of Government grants that have assisted us, we currently are capped by the state aid cap, which in the UK means we are restricted to €850,000 in a three year period," he said.

“We understand the European Government has enabled an increase to €3m in a year but that has not yet been approved by the UK Government, Treasury.

“Tenants and lessees of Marston’s have been able to access those grants and the biggest grants that were available in the first lockdown, provided they had pubs with a rateable value up to £51,000.

“Big impact for Marston’s on the various lockdowns. In terms of what we have done to remain solvent. We completed the sale of our brewing business into a joint venture with Carlsberg for £270m. That completed in October this year.

“We stopped all unnecessary expenditure including growth capital expenditure. We would have spent about £40m this year. We haven’t paid any dividends to our shareholders.”

Looking ahead, Findlay was also asked what he wanted to see in terms of communication from the Government.

“When we came out of lockdown in July, the level of communication with Government was pretty good," he continued. "We got consulted with on measures that would work, were capable of being implemented, were practical and we came out of the at lockdown with a very comprehensive series of guidelines.

“We also came out of that lockdown with a very comprehensive series of guidelines, we also had good communication on what the industry needed in terms of support from the Treasury whether that was the VAT reduction, or the business rates holiday and the furlough scheme.

“That communication level seemed to weaken considerably as we went towards October and the second lockdown.

“The consequence of that was the industry lost confidence in the Government because of the amount of stuff that was coming out via leaks as opposed to direct and secondly, the amount of engagement we had had.

“The result would have been better had we been communicated with. Some of the things that have happened would have avoided if we had better communication.”

Open communication

Findlay also called on the Government to open discussions sooner rather than later for the anticipated reopening.

“My point is talk to us and talk to us early not late," he said. "We are here now on 17 November, I understand we hope we will open on 2 or 3 December for the biggest trading period of my year.

“I don’t know which restrictions at this point I am going to be working to. I don’t know how many people of the 10,000 I’ve got on furlough, I can bring back. I don’t know what discussions I need to have with my supply team and logistics teams about getting food and beer into our pubs.

“This kind of late discussion and stuff happening late is incredibly difficult. Talk more to us, talk sooner.”

UKH’s Nicholls also outlined how the £3,000 grant for businesses closed in the second lockdown wasn’t enough to remain sustainable for all firms.

She said: “It is up to £3,000, it’s scalable depending on the size of the business and rateable value. £3,000 when you’re closed and have no revenue coming in at all for many of those businesses across the sector won’t touch the sides, particularly as they are bearing furlough costs.

“Particularly you’ve got a big black hole in Feb now they don’t have the ability to drawn down that Coronavirus Jobs Retention Bonus and that is a significant hit to the industry.

“Those two costs coming through need to be offset against the £3,000 grant that will be available. For some of the bigger companies in the sector we need to urgently have resolution the Government will opt into the increase of the state aid so businesses can get that cash.

“But it isn’t a huge amount of money to get you through and it certainly doesn’t compensate for the loss of income at such a crucial trading time.”

She went on to highlight how much the trade was hit by a drop in revenue before and while the second lockdown has been in place.

“Across the industry as whole, as those national restrictions started to bite, people were down at 50 to 60% of normal revenue levels it then fell to 30 to 40% and in city centre locations it was down at 20% of normal revenue levels,” she said.

“For hospitality as whole, breakeven is 75% and we’ve never hit breakeven this year since March. Those grants don’t compensate for the cumulative impact on a hit on revenue levels.

“They will be enough to get some businesses through and for many small businesses, they will be a lifeline to get through.

“For a lot of people in the sector, they are not subject to mandatory closure but they don’t get the automatic grant so they are having a lower level of grant if they can demonstrate and they can get discretionary grant.

"They are bidding into a local authority discretionary grant pot because they are technically able to close, particularly in the tourism sector, they are not required to close, but they have lost all of their business so events, functions, wedding venues, tourist venues, coach operators, tour operators, all that infrastructure that goes behind core hospitality, doesn’t have any guarantee they will get a discretionary grant from their local authority.

“We do need to look again, if we are going to have these restrictions in place for any length of time and equally if we are coming out of the national lockdown into a tier system, which saw hospitality core revenues down at 50% to 60% of their normal levels, then we are going to need to look again at this support, particularly if we have got this black hole of the Jobs Retention Bonus.”

Related topics: Legislation

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