Pub and restaurant owners face a bleak winter

It’s known as the Golden Quarter — the crucial last three months of the year when UK hospitality businesses typically generate between a third and a half of their annual profits.

Never has the “festive” season mattered more to owners of pubs, restaurants, bars, cafés and clubs which help shape the UK’s economic and social fabric.

UK hospitality entrepreneurs had hoped 2022 would see a steady return to some kind of normality after two years of forced closures, disruption, supply problems and recruitment difficulties arising from Covid-19 and Brexit.

Instead, this year has been a rollercoaster for a sector that employs nearly 2.5mn people and contributes around £72bn in annual gross value added to the UK’s economy, according to trade body UK Hospitality.

Even those with thriving businesses are feeling uneasy. “There’s no sense of control, of being able to budget,” says Tess Lidstone, co-owner with her chef husband Elliott of Box-e, a successful Michelin Bib Gourmand-listed Bristol restaurant.

During the Covid pandemic, unpredictability was, she says, the toughest business challenge. Now that feeling has returned. “You’re always on the back foot. That’s not a great way to run a business.”

First, there was anxiety about tempting customers and staff back post-Covid. Then war in Ukraine triggered huge energy price hikes and boosted inflation, taking consumer confidence down to its lowest level in almost 50 years.

Last month, after an outcry, the government offered business a temporary boost with a six-month energy package. But any relief was shortlived when, just two days later, the “mini” Budget brought financial market turmoil, temporary withdrawal of over 1,000 mortgage products and intervention by the Bank of England.

With the financial markets still unsettled, the interest rate on new mortgages is hovering around 6 per cent, some three times higher than a year ago, and more rises are expected. Householders are worrying about their repayments, fuel bills and the darkening economic outlook.

For hospitality entrepreneurs hoping the public will happily spend on entertainment in the run-up to Christmas, the timing could not be worse. Some are having to cut their own salaries to prop up their businesses and many are reducing personal spending.

Kate Nicholls, chief executive of UK Hospitality, says confidence relies on “certainty, stability and the ability to plan”. Instead, the backdrop is volatility. Many businesses in her sector are fragile, she says. “After a period of the best part of three years where instability has been the new normal, we desperately need a good Christmas.”

Supply price rises are a big worry. “You can pass on the occasional price increase,” says Dale Thompson, proprietor of cocktail bar The Narrows, which occupies a listed building he owns in Faringdon, a picturesque Oxfordshire market town. But not swiftly repeated increases. “There’s a point where people say, it’s not worth my going out any more.”

Data underline this. In June, survey findings from the sector’s trade bodies revealed that, burdened by rising energy, goods and labour costs, one in six hospitality businesses had no cash reserves. A follow-up UK Hospitality survey in early September suggested one in five would not survive the current cost of living crisis.

The study estimates this crisis will cost an anticipated £25bn loss in annual trade, compared to turnover in the year to June 2022 of around £130bn. Potentially, 383,000 jobs could go.

The report showed average energy price increases of 238 per cent for hospitality over the year from September 2021, with nearly 30 per cent of companies hit with rises of over 300 per cent. Average energy costs as a percentage of turnover have jumped from 5 per cent in 2019 to 18 per cent now.

The government’s six-month energy bill relief scheme provides a discount on wholesale gas and electricity prices for non-domestic customers. Applied to energy usage for six months from October 1, it caps wholesale prices at £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter.

Initial response was cautiously positive, though the Federation of Small Businesses warned of a potential “cliff-edge” after the six months. For many businesses with expiring price fixes, this is a huge issue; the government has suggested continuing support for “vulnerable” sectors but given no detail.

“People are on tenterhooks; all you’ve done is stay the execution — we need an energy policy,” says caravan park owner Patrick Langmaid, director of Mother Ivey’s Holiday Park near Padstow, Cornwall.

Other worries are surfacing. The Scottish Licensed Trade Association cites one publican whose energy provider wants an £18,000 deposit to renew his £6,000-a-month deal. “The hospitality sector is deemed to be a high-risk sector,” says SLTA managing director Colin Wilkinson.

Some who started or expanded their businesses in the hope of post-Covid recovery are now realising they may have been over-optimistic. Others who hibernated during lockdown are struggling to repay Covid-era loans.

Entrepreneurs cut personal spending

Many hospitality entrepreneurs are pruning personal spending. “I’m quite enjoying Lidl and Aldi,” says Brian Keeley-Whiting, 56, co-owner and managing director of WH Pubs, comprising four country pubs in Kent and Sussex. “Now, I’m thinking I want a bit more of a bargain.”

The tracker mortgage on his home has more than doubled since the first loan. “I’m seeing the mortgage go through the roof.” He has become more aware of motoring overheads too. “I’m very conscious of putting my foot on the accelerator.” 

In Faringdon, Thompson, 37, says he is “definitely belt tightening”, cutting down on car trips. “I’m going out less. It’s a sign of the times.”

In the Lake District, medical doctors Chris Moss and Josh Macaulay, 38 and 35, co-founders of Westmorland Homecare, have put renovating a house for themselves on hold to ensure sufficient cash for their other business, Westmorland Hospitality. “We’ve stopped doing that [renovation] because we want to make sure the pubs survive,” says Moss. They have invested heavily in a hotel and two pubs, including Kendal’s oldest, Ye Olde Fleece Inn.

In contrast to ministers’ vision of top earners splashing the cash, hospitality entrepreneurs are cautious.

“Conspicuous consumption is out of the window now,” says Langmaid. He has sold his Jaguar and bought a Honda. At his parks, profitable on £4.5mn annual turnover, he is ploughing in investment — £800,000 over the next year — to maintain quality but, he observes, “Everything is going up. Our own bills are going up.”

 He notices guests are eating out less; he is too. He and his wife used to think nothing, he says, of treating themselves. “We do think about it now.” He is worried too that the local food bank, of which he is a trustee, is seeing food donations drop.

Many in the sector are aware of their social role. Moss describes Ye Olde Fleece Inn as “a total labour of love . . . I don’t rely on it for my income.” Pubs matter for the social fabric. “Mental health issues are huge. People coming together, sitting down in friendship is absolutely crucial.” To help resolve staffing issues, he and Macaulay are paying for a visa for a chef to move from India.

Many entrepreneurs say a VAT cut would help. But with no sign of one, many plan to review opening hours after Christmas. The challenge is to cut opening hours, but not customers.

At WH Pubs, Keeley-Whiting, with 179 employees and a £5.5mn annual turnover, plans to break even next year, albeit on lower sales. He says he is “placid but worried” and adds: “It’s going to be a very tough year.”

Case study: Sachins, Newcastle upon Tyne 

Staying upbeat is key for Bob Arora, 53-year-old proprietor of Indian restaurant Sachins in Newcastle upon Tyne.

This is not to deny the pressures he faces, including a draining schedule working five days and six nights a week as a chef at his smartly decorated, mid-price restaurant, preparing signature dishes like king prawn, spinach and ginger Angel of the North.

But Arora, Sachins’ owner since 2000, is aware his customers want a good night out. “You can’t be all doom and gloom.”

The run-up to Christmas is a crucial “numbers game,” he says. On weekday evenings, Sachins has steady trade from business people, hotel guests and regulars. He is boosting advertising to try to ensure a full house, with 100 covers on Friday and Saturday nights. He fears that rising Covid cases, already causing cancellations, will escalate. “I’m just very worried there’s an announcement from the government saying, don’t go out.”

Bob Arora of Sachins
Bob Arora of Sachins: ‘My attitude is carry on and keep on going.’

Prices of key ingredients such as flour and chicken have doubled this year. So too have electricity prices, with gas not far behind. And finding good staff is an “absolute nightmare”. 

Annual turnover at Sachins — Covid years aside — is steady at £500,000. Having slightly reduced his own income from the business, Arora says: “I’m not eating out so much and driving only when essential.” And his monthly home bill for gas and electricity has risen from £75 to £360.

Arora is unimpressed with the “mini” Budget’s tax cuts, including the reduction from 20p to 19p in the basic rate; he doesn’t believe this will make people spend more. “I think it’s a drop in the ocean.”

Price rises have eroded profit, he says, “[But] we have our heads above water”. Still, given the hours he works, he doubts that he earns the minimum wage. “My attitude is carry on and keep on going.”

Case study: Mercat Grill, Whitecraig, East Lothian, Scotland

Loyal customers have been returning since Covid restrictions eased to the Mercat Grill in East Lothian but for Graham Blaikie, owner of the Scottish gastropub, there is no room for complacency.

“If you don’t think out of the box, you’re going to be in the box,” he observes.

His popular Christmas Day dinner normally sells out by August, but there are still places available for the £80 meal. Blaikie, also president of the Scottish Licensed Trade Association, is hearing many reports of lower Christmas bookings.

“Interest rates are probably at the back of a lot of people’s minds,” he says. And customers are aware of rising prices. He is too. “I’m thinking of changing some of my dishes’ dynamic,” he says. For example, an eight-ounce steak pie may go down to six ounces. And his speciality Haggis Cigar — a local haggis wrapped in pastry — is now offered online and at farmers’ markets.

Graham Blaikie of the Mercat Bar & Grill
Graham Blaikie of the Mercat Bar & Grill: ‘With things going up, I need to take £3,000 a day’ © Robert Ormerod/FT

This year’s festive season is top priority. But Blaikie, who employs 10 full-and part-timers, is already assessing how, in the subsequent winter months, he could best concentrate customer footfall and staffing into fewer days by reducing opening.

“With things going up, I need to take £3,000 a day,” he says. “Before I even open up it’s £420 a day for rates, gas and electricity, plus £500 staff costs, plus food and VAT at 20 per cent — that’s £3,000 to break even.” Business rates and mortgage payments would still apply but he could limit other costs. He may open Friday, Saturday and Sunday in early 2023. Closure for three weeks in January is definite.

His £3,000-a-month price fix for gas and electricity expires in March, just as the government’s price ceiling for businesses ends. Braced for his bill to double or treble, he is researching solar panels and a new gas boiler.

At 46 he has many years’ work ahead in hospitality. “I like to think I’m quite a positive person,” he says. “Failure is not an option.” 

Case study: Espensen Spirit, Bristol

After seven years of adapting to changing trends, Sam Espensen sees the next six months as make or break for her Bristol-based business.

Espensen Spirit makes gins and vodkas by compounding, a process of adding ingredients to neutral grain spirit.

A lack of ticket sales for a planned September spirits tasting event at which customers would have been naked — a nudist concept which had previously generated great response — heightened Espensen’s concern that middle-class consumers are cutting their spending.

“This year what people really need is some confidence that they can buy a nice gin rather than an Aldi one,” she says. “Christmas should be our boom time.” 

Espensen Spirit was co-founded in 2015 by Espensen and friend and business partner Phil Gillies, who owns the premises where it is based. To generate rental income, the bar and dining area have been let this year to Dough Heads, a pizza business, allowing Espensen to concentrate on events and collaborations, such as links with Bristol Cathedral.

Products include Chapterhouse Gin, incorporating herbs used by Augustine monks, such as chamomile and angelica root, plus frankincense. She is preparing for a five-day tasting event at the cathedral next month and has other pre-Christmas bookings too. “This could turn Espensen Spirit’s fortunes around,” she says.

Sam Espensen of Espensen Spirit
Sam Espensen of Espensen Spirit: ‘Everything for us depends on Christmas’ © Gareth Iwan Jones/FT

Recent months, however, have been difficult. She has taken no income, instead earning money by working part time as a copywriter. She now has two lodgers and has transformed her food shopping by planning meals for an entire month, batch cooking and freezing.

In 2019, the last pre-Covid year, Espensen Spirit’s turnover was £90,000 but it made a small loss. Shorn of its food operation in the bar, Gillies will be content with £70,000 turnover this year but says she cannot support it indefinitely. “Everything for us depends on Christmas.”

The business, which also sells online, has one part-time employee; events staff are recruited via hospitality jobs app Limber. Espensen’s headaches include rising ingredient costs, a glass bottle shortage and, now, monthly repayment of her Covid-era £18,000 Bounce Back Loan. “The bounce back hasn’t even happened,” she says. “We’re still in survival mode.”

Evaluation of Espensen Spirit’s future, post-Christmas, will be tough. “I’ve ploughed every bit of my money, hope, soul into this,” she says. At 49, she needs to work. She has started training as a counsellor, just in case. “There is more need for counsellors than there has ever been,” she says. “A lot of hospitality people are pivoting into the mental health arena.” Pub and restaurant owners face a bleak winter

Adam Bradshaw

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