UK: Long Term Health Of The Pub Industry Still In Doubt

UK: Long Term Health Of The Pub Industry Still In Doubt

Pub company insolvencies are down a third from the peak of the recession but fears of further Government spending cuts, potential interest rate rises, and a reduction in discretionary spend could slow recovery – causing a further wave of restructuring and insolvency.

According to new research from consultancy firm PricewaterhouseCoopers, the insolvency rate appears to have peaked in the last quarter of 2009 when 88 pubs businesses failed. (The PricewaterhouseCoopers LLP insolvency statistics monitor pub companies as opposed to individual units.). The rate of failure has now (Q2 2010) dropped by 32%. However, the level of collapse is still comparatively high - nearly 10% up on just two years ago. In the first half of 2010 London based companies such as London Town, Capital City Brewing Company Ltd, and Globe pub management became insolvent, as did several large late night venues such as Fabric nightclub and the Budha Bar.

David Chubb, partner, PricewaterhouseCoopers LLP said, "Pub company insolvency rates have fallen from where we were a year ago – but trading remains difficult and further failures are expected as lenders consolidate their positions. The insolvency stats do not fully illustrate the extent of the problems in the sector as much underlying restructuring activity continues. Even without entering insolvency creditors may still experience pain."

Despite talks of public sector cuts and an uncertain unemployment market, 22% of consumers polled anticipate having more disposable income over the next 12 months, up from 17% year ago. Economists are currently speculating that interest rates could be raised to 1.5% or even 2.5% by the end of the year.

"Any interest rate rise this year will increase the cost of mortgage repayments, squeezing discretionary spend on leisure activities. Even the uncertainty around interest rates causes people to hold back." Chubb explained.

The pub trade is still operating under duress and although the Coalition have scrapped the review of the smoking ban (which was thought to include plans to expand the law to cover beer gardens and other communal areas), alcohol consumption will remain on the public health agenda. David continued, "we have just seen the first World Cup since the smoking ban came into force – which might explain the high volumes of people who watched the England games (and other matches) at home."

"Generally insolvency rates increase as an economy clambers out of recession - due to working capital pressures. However, as pubs are not vulnerable to working capital any signs of a UK recovery, when they come, will be good news for the pub industry."

Meanwhile, PwC found that restaurant company insolvency levels in Q2 2010 are up 5% on the first three months of the year, but down 30% from their peak of 183 in Q1 2009. "While the propensity to dine out is still very much a part of UK culture, the pursuit of value for money by the consumer has led to even high end restaurants in London laying on fixed menus and other offers usually seen in casual dining."

"Restaurants must use their customer data to analyse whether such offers are bringing new customers through the door or whether their regulars, who would dine regardless, are just doing so and paying less," Chubb expanded.

Such levels of discounting are unsustainable, another factor adding to the insolvency rate in this sector which is still 30% higher than it was just two years ago.

Chubb concluded, "While restaurant closures have slowed both regional and London eateries are still very reliant on promotions and as a result profit margins remain under pressure. Consumers are likely to demand even greater value for money in the coming months as the impact of higher taxes and interest rates take hold."

via kamcity.com

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