UK on-trade analysis: not out of the woods yet

A report released by Fleurets, UK property specialist for the hospitality industry, provides a revealing health assessment on the sector this year and pours tepid water on hopes for a significant recovery in 2010.

Describing 2009 as a year “swamped by the pubco disposals”, the firm is currently selling an average of five “bottom end” pubs each week. Fleurets also attributed this activity to the fact that it now finds a greater number of freehold pubs being sold than in previous years, with 675 currently on its books.

Looking ahead, the company anticipates a continued rise in the number of freehold venues being sold, although it qualifies this by adding that this will depend to an extent on how many bottom end pubs continue to be put on the market by the pubcos, and at what price.

Across the board, the pub prices have plummeted from 2007, despite a slight improvement in some corners compared with last year. Freehold prices are 20% lower than 2 years ago, while bottom end pub prices are nearly 36% down over the same period. Meanwhile average leasehold prices have collapsed from £85,000 to £48,000, or 13% of turnover.

On the restaurant side, Fleuret’s reported involvement in property sell-offs for a number of failed businesses, including part of the Med Kitchen Group and chef Anthony Worrall Thompson’s company, AWT Restaurants Ltd.

Tracking other casualties of 2009, the firm highlighted Tootsies and, more recently, the pre-pack administration of Regent Inns, which runs the Old Orleans restaurant chain.

At the top end, the Fleurets team noted the negative impact of constrained bonuses and expense accounts, picking out the 5% turnover decline for D&D London.

Commenting more broadly on the prospect for UK restaurants, the company observed: “There is no doubt that 2009 has been tough and with the current economic outlook we are of the opinion that 2010 will remain an equally difficult period for the restaurant sector.

“On a positive note, the worst of the credit crunch appears to be behind us with the banking sector seemingly on the road to recovery. Interest rates are at and likely to remain at historically low levels for the foreseeable future”

Fleurets also pointed to “encouraging” signs generated by renewed acquisition activities in the corporate market, which had remained largely dormant for much of 2009.

However, the company warned that the outlook for 2010 and beyond will hang on the result of the spring general election, the fiscal measures laid out by the resulting government and their effect on consumer confidence.

Turning to the nightclub sector, the company was far from optimistic, suggesting that around 500 venues could close between now and 2013.

In addition to the previous challenges brought on by factors such as the smoking ban, low off-trade prices and late opening pubs and bars, Fleurets noted the particular impact of the steep rise in youth unemployment.

With many nightclubs dependent on the 18-24 market for their customer base, it seems a number are now looking to broaden their appeal to the older singles or divorcee markets.

Summing up the prospect for the nightclub industry, Fleurets observed: “No doubt the Christmas and New Year period will make or break an already difficult year, although those who are able to weather the storm will stand in good stead once the recovery kicks in.”

One would imagine that there will be many other on-trade businesses pinning their hopes on an uplift from the festive period. However, it is likely to be the extent of the annual hangover in January and build-up to the election which provide a more useful picture of the road ahead.

Gabriel Savage, 08.12.09