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Time for a hair of the dog?

Neil Morgan, Managing Director - Pubs & Restaurants believes the market is suffering one hell of a hangover.

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Doesn’t time fly? One minute it’s New Years Day and you’re sleeping off the hangover, and the next thing you know, it’s the middle of July and you’re wondering where it all went.

The first half of 2016 has thrown a lot at the UK pub sector. By now, we should have seen the implementation of the MRO code (or not, depending on the Government’s ability to organise a you-know-what in a brewery) and April saw the National Living Wage come in – an increase in staff costs which many publicans will not have considered until it happened. In addition, we’ve also seen a Budget that offered an olive branch to the market through Stamp Duty cuts, a review of service charges and, of course, the Brexit Sword of Damocles hanging over our heads.

Interested parties from across the pub sector, whether they are freeholders or tenants, pubcos or independents, have been nothing short of confused as to where the land lay, and certainly haven’t been feeling confident enough to take any decisions on their business’ futures.

We haven’t seen any significant pub deals taking place since the end of 2015, and although some of the smaller pubcos have expanded by taking third or fourth sites, there really hasn’t been too much movement in the sector as a whole. Like-for-like sales have been generally down in comparison with last year, and with the nerves abounding, fewer pubs are coming to the market, so there has been less to buy even if you felt confident enough to dabble.

We’ve seen some acquisitions of quality managed houses, but individual publicans have certainly found the going hard, and while the banks are continuing to loosen their grip on their lending pots, Private Equity has disappeared into its shell and only sticks its head out for a dead cert.

Of course, there has still been activity for opportunistic buyers, both independent operators and pubcos, who are frequently showing that if a pub is attractively priced, in the right location, in the right hands and providing the right offering, moves can and will be made to acquire, but it appears that the market as a whole hasn’t been moving in this direction.

The word “stagnant” really doesn’t do it justice. It’s almost as if the market is still has that morning-after feeling.

All that said, we’ve reached the top of the mountain now. The uncertainty of the EU Referendum is out of the way, the MRO code is imminent if not already in position, and now those serious about succeeding in the pub trade can get on with making some important decisions about buying, selling, expanding and moving forward.

As the sun comes out, we’re pretty confident that the mood will start to lift.The second half of the year is going to be more stable, and the nerves created by the uncertainly of the first half will stop jangling.

As the recent headaches and confusions subside, publicans will be breathing a collective sigh of relief at the realisation that the Government’s proposed legislation on drink-driving limits will probably be taking a backseat in the light of Brexit fallouts and all of the other legislative issues that have been thrown around the pub sector.

Going forward into the latter part of 2016, we’re expecting to see the continued convergence of the pub and restaurant sectors. For a start, the casual dining arena, which has been growing exponentially in recent times, is likely to grow further, and licensed establishments will increasingly depend on their food offer. The rise in popularity of the likes of Red’s True BBQ and Turtle Bay demonstrates how the public, particularly the under 25s, want good food, served well, with a beer alongside, but at an affordable price. What impact this has on the pub trade remains to be seen.

Those that specialise in 100% wet-led estates are continually doing well to the extent that some operators, for example, Amber Taverns - A well-known exponent of the concept - are actively expanding across the UK. Add to this the increasingly obvious statement that Real Ale is in fashion, we can see why operators are keen to use beer, craft or otherwise, as an additional attraction to keep their punters in the pub. It’s a trend that we’ll be watching with interest.

While the first half of 2016 has been on the quiet side in terms of activity, at the time of writing, we can see that pub deals are brewing, and that things are starting to move in the right direction – there are certainly deals on the horizon for many operators, and we expect things to look lively in the latter half.

As we hit July, hopefully the sector and its constituent parts will feel ready to get their heads out from under the duvet, swallow the aspirin and shrug off its collective hangover. The Brexit nausea will no doubt continue for a while, but the banging MRO headache will dissipate, and we should all be prepared to face the greasy fry up. It’s time for a hair of the dog.

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