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Christmas Saviour or Christmas Killer?

As details slowly emerge about the government’s plans at the end of this second national lockdown, the hospitality sector is asking if this is the “final nail in the coffin” for many pubs, bars & restaurants.

The prime minister announced yesterday (23rd November) that the current 4 week lockdown, due to end next Wednesday 2nd December will be replaced by a revised and tougher three-tier system to try to control the virus in England.

Scotland, Northern Ireland and Wales are all currently subject to their own rules, but the government is working hard to bring the four nations together to agree a joint plan for Christmas and the New Year.

Details, which are expected to be announced on Thursday (26th November) will confirm which areas are to be placed in which of the three tiers. Boris Johnson warned in the Commons yesterday that “more regions will fall, at least temporarily, into higher levels than before” and that the system will last until next Spring.

The restrictions facing the hospitality sector will vary depending on the different tiers and appear to offer little confidence to the sector, which has continued to suffer dramatically during the pandemic, despite taking huge precautions and spending millions on safety.

One thing is for sure, customers won’t be able to stand at the bar and chat to friends, family or colleagues. In simple terms, here’s what the new three-tier system will mean to hospitality:

Tier 1 (the lowest tier) – As previously, establishments can only provide table service, although the 10pm curfew has been extended to 11pm. Last orders will be at 10pm with a strict 11pm closure time.

Tier 2 – Will have to close unless they are serving a ‘substantial meal’ which can be accompanied by alcoholic drinks.

Tier 3 – Hospitality businesses can only offer a take-away service.

Industry body UKHospitality warned the measures would result for more lost businesses and jobs heading into the crucial Christmas season, in a sector that has been amongst the worst hit to date.

Its chief executive, Kate Nicholls, said: “The government is making a point of saying that these measures are needed in order to save Christmas.

“In reality, they are killing Christmas and beyond for many businesses and their customers who look forward to, and rely on, venues being open at this time of year. Sadly, for many staff, it will be a Christmas out of work.”

Ian Wright, her counterpart at the Food and Drink Federation, said: “There is real danger that continued restrictions will result in two thirds of pubs, clubs and restaurants – customers to food manufacturers – closing before the vaccine arrives”.

The Institute of Economic Affairs think-tank said the restrictions would mean a “death sentence” for countless pubs and restaurants. Its head of lifestyle economics, Christopher Snowdon, said: “The government has decided to lay waste to thousands of pubs by requiring a ‘substantial meal’ to be served with drink. There is no scientific basis for this, and it will be impossible for wet (drinks-only) pubs to comply”.

All three are demanding further urgent financial support for the hospitality sector.

Hospitality to close for 4 weeks or more

Again the country is to go into lockdown as Covid-19 cases surge all around the country. This is a big blow to the hospitality sector again. The Furlough Scheme has been extended until the end of November which is good news. The industry is calling out for more relaxed rules about takeaways as currently, alcohol is not going to be permitted in takeaways.

From Thursday, November 5, to December 2, England re-enters national lockdown, which bans all but essential travel, meaning domestic (and international) holidays are no longer allowed. 

Hotels, hostels and other accommodation are allowed to operate only for “those who have to travel for work purposes and for a limited number of other exemptions”. 

What does this mean for the country’s hoteliers? They will have to cancel (or move) all leisure bookings for the dates of lockdown.

Marstons says it will axe up to 2,150 jobs

Pub and brewery group Marstons says it will axe up to 2,150 furloughed jobs following new restrictions to curb the spread of the coronavirus.

The company said since the first lockdown was lifted, 10,000 of its employees had returned to work.

But Marstons said new measures such as the 10pm curfew and restrictions in Liverpool mean 2,150 roles are going to be impacted.

The current wage subsidy scheme expires at the end of this month.

It is being replaced by the Job Support Scheme which will top-up wages for employees who have not been able to return to work full-time because of the coronavirus.

The company said that since 4 July it had reopened 99% of its pubs and “consumer confidence increased steadily throughout July, August and into September”.

However, it said new restrictions such as the 10pm curfew, table-only service and the closure of pubs in some areas of Scotland had undermined consumer confidence.

Marstons said: “The introduction of these further restrictions and guidance affecting pubs is hugely disappointing in view of a lack of clear evidence tying pubs to the recent increase in infection levels, and our own data which suggests that pubs are effective in minimising risks.”

In the 13 weeks since reopening, it said sales were 10% below last year. July recorded the biggest fall, with sales down 26% before turning positive again in August. However, in September, trade dropped by 12%.

Marstons said it has 21 pubs in Scotland, of which eight are currently closed. It also has 18 pubs in the “highest risk” Liverpool region, the majority of which can serve food so therefore can remain open.

Winter Economy Plan will not stop jobs being lost in hospitality

Sales have continued to decline following the 10pm curfew with like-for-likes down 21.2% compared with the week before it was introduced,

According to S4labour, the online labour-scheduling management system from Catton Hospitality, like for like sales are down 21.2% on trade before curfews were put in place for the hospitality sector.  Food sales fell 19.1% and drink by 23.2% on the fortnight before. London has been the worse hit with a 38.4% decrease in sales when compared with last year, whereas there has only been a 5.2% decrease in the rest of the country. S4labour also said it was worth noting roughly 10% of sites are still yet to open after lock-down measures were introduced. Chief product officer Richard Hartley said: “This level of decline is unprecedented and worrying for the industry, although the weather may have played a part. As the curfew has been introduced, diners and drinkers will start to head out earlier, as a closer look at sales shows a larger proportion of sales came in earlier.”

Not surprisingly more than 50% of late-night businesses, such as night clubs and bars have seen a further 60% drop in revenue since the curfew was implemented, The Night Time Industries Association (NTIA) said that 60% of businesses have started to make people redundant.

The Winter Economy Plan is not enough to support the sector according to the research with just under 50% of businesses saying that they will be making more than 60% of their workforce redundant due to reduced support and the current restrictions. NTIA chief executive Michael Kill said: “Our sector must not be under-valued, we need to challenge the government when restrictions result in the systematic closure of an entire Industry. In the coming weeks, without further support, we are facing a catastrophic collapse, which will see thousands of businesses and jobs lost.”

If your business finds itself between a rock and a hard place of needing to make redundancies but can’t afford to do it then a CVA may well be the solution.

Once a proposal is made and the creditors agree to have some of their debt paid back over time then the mechanism can allow big costs to be cut. 

  • Employees can be made redundant at no cost to the company
  • Expensive premises can be vacated at no cost
  • Onerous contracts can be terminated
  • There can be no legal action against debts bound into the agreement.

In addition, the directors have full control of the company, unlike in administration, which almost always results in less return to creditors and a much smaller business if it is sold.

A quarter of hospitality businesses fear going bust

New data from the pub industry released today showed that almost a quarter of hospitality businesses think they will go bust by the end of the year without new government support.

Yesterday Boris Johnson unveiled sweeping new measures to curb a rise in coronavirus cases, including a 10pm curfew on all hospitality firms.

The move, which the sector slammed as “devastating”, heaps pressure on an industry which had just begun to recover from the spring’s lockdown. 

The survey, which was carried out by market researchers CGA on behalf of the British Beer & Pub Association (BBPA), UKHospitality and the British Institute of Innkeeping (BII) before the announcement was made, showed that 23 per cent of their members expect to fail in the next three months unless further help is given.

Thus far, one in eight hospitality staff have already been made redundant, with many more jobs expected to be lost when the furlough scheme ends in October.

Although chancellor Rishi Sunak is set to unveil a new “winter economy package” tomorrow, both he and PM Boris Johnson have heavily hinted that the initiative will not be extended.

On average, the businesses surveyed said that they expected their workforces to be 25 per cent lower this coming February than a year previously – a loss of 675,000 jobs in just 12 months.

In order to stave off such a situation, the bodies have called for a new sector-specific employment package, as well an extension of the business rates holiday and VAT cut on restaurant food.

The proposals echo those made by a group of the UK’s most prominent fast food chains earlier this evening.

Emma McClarkin, chief executive of the BBPA, said that the sector was “already teetering on the edge” before the new restrictions were announced.

She said if the government did not take extra steps to prop up the sector, it would be “unforgivable”

“Only by taking these measures can the Government save our pubs, hospitality businesses and as many as 540,000 jobs. If the Government doesn’t act now it would be unforgiveable.”

UK Hospitality chief executive Katie Nicholls agreed, saying that the future of the sector was “still in the balance”.

“Many venues have still have not reopened and those that have are operating at reduced capacity and a fraction of normal revenue. We have already had some high-profile casualties and far too many job losses”, she said.

“The additional restrictions announced this week place even further burdens on a sector that is operating with razor-thin margins and needs all the help it can get. It is vital that these restrictions are reviewed regularly.”

Business Interruption Insurance policies to pay out over Covid-19

The High Court has ruled in favour of a group of insured businesses. The Hiscox Action Group (HAG) felt aggrieved that their policies provided by Hiscox Insurance didn’t cover loss of business due to the Coronavirus.  The insurers argued that the policies only covered local lockdowns or specific shutdowns on their properties caused by a disease.    The case was brought with the help of the FCA.  16 insurers agreed to be defendants, so that clarity could be provided for wording that was present in 17 different policies. Read more here

Eat Out to Help Out Huge Success

Rishi Sunak’s Eat Out to Help Out has been hailed as a huge success with 65 million meals claimed on the discount that ran from Mon-Wednesday. Restaurants reported that they were completely booked out during those days and spend was up significantly. This has been a welcome boost to the hospitality trade and there are calls for it to be extended. Although officially it has come to an end many outlets are continuing the discounts anyway as trade was boosted so much.

Hospitality to Reopen 4th July

Finally, the go-ahead has been given to the hospitality industry to reopen with the social distancing rules reduced to 1m. There are a raft of rules and guidelines for the industry which should keep them “Covid Secure”

Read the guidance here

Travelodge to propose CVA

Just last month, Travelodge hit the news for looking at a CVA again.

Today we are told that a CVA is to be unveiled which includes a new commitment from shareholders to inject up to £40m of new equity.

The borrowing capacity has been increased to £100m, compared to the £60m initial amount.  

An insider for the hotel chain says that this CVA will be not result in any hotel closures and all its 564 sites would revert to their full rent agreements from the end of next year. Additionally, landlords would receive £230m in rent for the period between the successful conclusion of the CVA and 31 December 2021, despite being under the mechanism, as well as being promised payments equating to a 50% share of any earnings before interest, tax, depreciation and amortisation above £200m during the next three years.

The CVA plan is currently being questioned by landlords so the prospects of it being endorsed by the majority of creditors is unclear.

Carluccio to be bought

Just over a month since the last news hit the media about the state of Carluccio’s administration and we hear of a promising deal in the line-up for the struggling high street restaurant chain.

The owner of the Giraffe restaurant chain, Boparan Restaurants, led by tycoon Ranjit Boparan, is said to be making a deal to takeover the Carluccio’s brand, head office and around 30 of its restaurants. 

If this deal is set in stone, around 900 employees will be saved and there will be a short-term guarantee of the brands future.

FRP Advisory declined to comment.

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