Tuesday, 15 September 2020

Winter is coming

To listen to some in the media, you would think that the pub trade is out of the woods now. Drinkers have flocked back since they reopened on July 4th, customers have been queuing out of the door to take advantage of the Eat Out to Help Out scheme, and they are currently enjoying the beer gardens in this spell of Indian summer weather. However, looking forward, as the nights grow in and the temperature drops, their prospects don’t look anything like so rosy.

Social distancing rules mean that their capacity is still severely limited, and some small or cramped pubs haven’t been able to reopen at all. However, they’re often nowhere near attracting even the reduced numbers they’re permitted. City centre commuting remains way below the level before the lockdown, and many activities that generate footfall for pubs such as spectator sports events and live music concerts have still not restarted. Domestic tourism is greatly reduced, and international visitors have virtually disappeared.

Added to this, many celebrations such as birthdays, christenings, weddings and wakes that produce a lot of business for pubs can only take place in very limited form, and the “Rule of 6” introduced by the government last week further restricts gatherings of this kind.

In view of this, it’s hardly surprising that a wave of closures and redundancies is forecast, with North-West brewer and pub operator Thwaites being one of the first to make a formal announcement. Inevitably, with the furlough scheme winding down by the end of October, there are calls for further financial assistance, and certainly if businesses are unable to function at all the case for support is compelling. But the question has to be asked where the money is going to come from, given that we have already mortgaged our children’s and grandchildren’s future to pay for the first lockdown. And no government can keep businesses on life support indefinitely if there is no realistic prospect of reopening.

At least pubs can open to a limited extent, but that isn’t true of nightclubs, which remain firmly shut, with no prospect of that changing any day soon. Some may dismiss them as an inessential frippery, but like many other inessential fripperies they provide a lot of jobs and economic activity. The Morning Advertiser reports that three in five venues face closure without government support, and the Deltic Group have fired the starting gun by declaring 400 redundancies. Many operators are likely to reach the conclusion that, with no expectation of reopening until well into next year, they might as well put up the shutters and go into liquidation.

Another organisation that has effectively been brought to a standstill is CAMRA. All of its normal everyday activities – branch meetings, socials, presentations, pub crawls and brewery trips – are now impossible. A few half-baked virtual events are no substitute for face-to-face engagement.

Since the beginning of the year, the headline membership figure has fallen by almost 10,000. This isn’t due to people resigning in disgust, but to natural attrition. The main source of recruiting new members is beer festivals, which have been impossible to hold for the past six months. And festivals are also the second largest source of revenue after membership subs.

So, given that, frankly, there’s little prospect of much improvement in the situation until well into 2021, CAMRA is going to have to take a long hard look at its activities and its organisation. It’s no longer a case of just riding out the storm for a few months.

In the short term, further financial assistance may help tide pubs over, but only for a limited period. Eventually, their prospects are entirely dependent on the general health of the economy. The government needs to take the lead in restoring confidence, but unfortunately their announcements last week have only served to intensify the climate of fear, and further restrictions such as curfews are being actively discussed. So there doesn’t seem to be much prospect of any improvement for months, and the pub trade has a very bleak winter to look forward to.

9 comments:

  1. We haven't mortgaged any grandchildrens future. Government debt is owed to the BofE. The BofE created it to give to the govenment.

    It's money the country owes itself.

    Since 1946 the UK government has increased what is called the UK national debt by £1,782 billion. In that same 74 year period the UK government repaid just £38 billion of the national debt. We have repaid almost none of our national debt over the last 74 years.

    We've printed money and devalued your retirement savings, pal. So don't worry about the kids.

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    1. Absolutely right. Interest rates on government debt are at historic lows and even negative on some bonds. Surely it is better to spend £x on public investment than a broadly similar amount on unemployment benefits and redundancy costs.

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    2. Ah, Corbyns fallacy. Interest rates are low so let’s borrow. Interest rates are low because the bond market is manipulated. There has been no market nor price discovery for over a decade. Sure, the BofE sets the rate but the market sets the yield by discounting the coupon. A 1% rated coupon may have a market price of 95p on the pound, setting a yield of 6%, as investors require more than 1%. When the BofE enters the market to buy the government debt with printed money they are manipulating the coupon price back to a pound on the pound and maintaining that 1%. The effect this has is to negate the advantage capitalism has over other systems in terms of the function of capital allocation in an economy. Without a market of price discovery, it creates the same misallocation of capital that occurs in planned socialist economies and in turn creates the economic stagnation we can see all around us and see in socialist countries. Rather than replacing capitalism with socialism, we are replacing it with feudalism as assets are acquired by those with access to the newly created money.

      This creates an opportunity should Mudge ever create his National Trust of Pubs. All he need do is create a highly geared fund at a low or even negative cost of finance, and go about sweeping up all those grotty boozers he wishes to save

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  2. I think you're right on almost all fronts. Reading the Thwaites rationale they were acting early to build in margin & spare financial breathing room to ensure the bulk survives,an inevitable but wise move,that matches the analysis here. Regarding nightclubs they are a very important part of the culture & in a very tight situation. A touch harsh on CAMRA'S online stuff(some was very good though still tiny in proportion) but a correct analysis non the less I feel. I note in one of their online features a piece by Harveys indicated they were at 4% production during lockdown- a massive hit,and they have sensible reserves,many many don't. Which draws me to the main thrust of the piece,it's a long winter coming,as many in the trade know all too well in normal times. Many units normally build up reserves in summer,particularly in tourist areas,and rely on those for winter. Of course their last proper summer was 2019,and the big summer revenues won't return until at least June '21.That's a very long run for all but the healthiest businesses.

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  3. The most galling thing about all this is the heatwave during lockdown. Such prime weather and the pubs missed it.

    Since 4th July there has been a steady slew of anti-pub/drinking stories. The one today about threatening a 9pm curfew on pubs if the Ro6 isn't observed seems very carrot and stick.

    But all the negativity can work, as the daily YouGov poll (generally answered by the desperately sad), a majority of each age group support said curfew. These are the arses you see at Xmas and Bank holidays and who complain about smokers in beer gardens. The government need only ask if they'd prefer brown or black shirts and they've got an army of snitching marshals.

    From a business point of view, I can only say that sales have ebb and flowed but one pub in Wigan did say this past week had seen their taking halve, so the constant stories of "cases" is wreaking it paranoid worst.

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  4. The attrition in the hospitality industry caused by the incompetent response to an entirely predictable response is comparable to the attrition caused to industry in the eighties caused by direct government action. In my home town in West Yorkshire, a town heavily dependant on mining and textile manufacture, thousands of jobs were lost. But the town pulled through, diversified and is again a prosperous place.
    In a plague country the hospitality industry will have to retrench and diversify. In the long term (when I am dead :-) the reduction in travel can only be a good thing and is something that would have had to be faced with or without the plague.

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  5. At least all the moaning about once a year drinkers and office parties can be given a miss as there will be none of that this year.
    We missed the boat on immunity. The economy will be dead until a vaccine. The pubs that survive will be freeholds owned by those that can afford to mothball.

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    Replies
    1. Yes, the vanity business micros and craft bars. Things are looking up.

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    2. A feature of the cottage industry end of brewing and pubs that is favoured by the CAMRA wallas may not be it's resilience but in the low cost and frequency of new post covid start ups. The retirement dreams of those currently bought in may die but every year provides a fresh supply.

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