What will the end of lockdown mean for the on-trade?

Wherever Boris Johnson’s “road map” for the relaxation of coronavirus restrictions points, the landscape will look different to a year ago. It will be new, but it won’t be what was normal.

After a year of lockdown, there is huge pent up demand for socialising. David Haworth, the head of Pernod Ricard UK, says he is expecting a “massive boom” in on-trade sales when restrictions on opening are eased and is “planning for a good summer in the on-trade”. His prediction is widely echoed.

Customers have money to spend. A survey by the Recruitment and Employment Federation has found that office workers each have “saved” (not spent on commuting etc) £1,268 since the first lockdown began last March. Some of that will go on celebrating the renewing of family relationships and reunions of friends.

Meanwhile, the Bank of England calculates that households had accumulated £125 billion in “excess” savings by last November, a figure predicted to double by June. On the downside, it suggests that only 5% of that surplus – £12.5 billion – will be spent across all sectors, including hospitality, as the economy is unlocked.

Hospitality will benefit from an initial demand surge but where will the public go to spend as restrictions are eased?

For a start, there will be many fewer licensed premises to choose from. Recent data from CGA and AlixPartners showed that almost 10,000 licensed outlets closed permanently in 2020. Twice as many venues (restaurants, hotels and bars) were shut as new ventures opened despite the raft of government initiatives, grants and subsidies designed to keep the hospitality sector afloat.

Within that total were almost 2,000 pubs that closed their doors for good – more graphically, that`s five pubs every day – according to CGA Market Recovery Monitor.

Any initial half-way house programme of outside-only service will rely heavily on the weather. Pub groups and individual licensees are adamant that uncertainty over staffing and other costs will make it impractical for many to resume trading until full reopening with inside drinking is permitted. Even then, some will still give up no matter what further reliefs Rishi Sunak proposes in his budget next week.

After an initial surge in business from the reopening of pubs and restaurants, what will their trade look like?

Restaurateurs and licensees have taken a hard look at their operations during lockdown and decided they must cut costs to survive. Their menus may be shorter and focused on local produce to offer a cachet. Wine and beer lists will concentrate more on a combination of the most popular products and highest margins.

Will the clientele even be the same? Over time some urban locations will be forced to change because of evolving employment patterns.

Research last week from Atlas Cloud found that lockdown had transformed attitudes, especially to the work/life balance.

Of those questioned, half said they would attempt to change jobs if they could not work in their preferred location: two-thirds said they wanted to end the Monday to Friday commute in favour of a more flexible combination of home and office working.

And despite half those questioned believing that their employers would not allow the shift to such hybrid working, a drift in that direction would have implications for pubs and restaurants, not only those in towns that could lose out due to fewer customers but also some in more rural locations that might stand to benefit.

In addition, with retail in crisis and high street stores boarded up, how far will the shopping expedition lunch survive?

So not only is there likely to be a longer-term graduation to larger outlets but the characters of both their offerings and clientele will change. Inevitably that will mean more closures, especially of “wet led” outlets.

On the positive side, there are potential buyers for the right pubs. Recently both J.D. Wetherspoon and a newly-launched group headed by Rooney Anand, the former head of Greene King, have said they will be looking to snap up potentially profitable outlets. Others are also seeking similar opportunities.

However, once the initial “reopening splurge” has passed, how many of their newly returned patrons will pubs be able to retain?

The most significant trends during the year of lockdowns have been the switch to consumption at home and the growth of spirits demand to satisfy the growing interest in cocktails.

Over Christmas and the New Year weekly wine sales at Waitrose were a third up on 2019 while beer sales soared by 49%.

Spirits in particular became the lockdown drink of choice, with Waitrose reporting a 64% increase in rum sales and a 56% jump in Tequila business.

This poses the question of how far the consumer will return permanently to the on-trade as restrictions on socialising ease. Will the growth of home entertaining prove more than a temporary trend, backed by the realisation that of necessity prices are higher in pubs, restaurants and hotels because of the facilities and service they offer?

Home consumption will be propped up by continuing growth in e-commerce. Pernod Ricard’s UK arm more than doubled sales via that route in the second half of last year but they still account for less than 10% of the total. Both Pernod Ricard and its competitors are investing substantially in developing the sector, so it can only increase in importance.

One thing is certain. Covid-19 and the effects of the 2020 lockdown will change the face of the licensed trade. When the rush back to the pubs and restaurants settles, the longer-term impact could easily eclipse that of drink-driving legislation and the smoking ban combined.