Half full or half empty? Pubs and bars face tough challenges ahead

A growing number of pubs and bars are struggling to make ends meet, with even the biggest companies issuing profit warnings over the last few weeks.

Recent data has shown that there has been a 9% increase in the number of insolvencies of pub and bar companies in the last year to 482 in 2016/17, up from 444 in 2015/16. This is the first time in four years that the number of pub and bar insolvencies has risen.

The data is significant and shows that widely reported headwinds faced by the sector – such as slower consumer spending and higher import costs – are starting to erode the margins of even the largest companies.

Some pub and bar companies are fighting back by borrowing to invest in their facilities or developing their offering to pull in more punters and boost slowing sales. They are increasingly using alternative finance as a suitable source of funding to fit their business needs.

The sources of alternative finance obviously include Ortus and we’ve seen a huge number of pubs achieve success despite the difficult market – often from a standing start. In all cases, these pubs have quality management with the energy to push through difficult times. However, they also have detailed business plans with specific strategies for driving income on a daily basis – coffee mornings, themed nights, live bands, specialist food – the list is endless.

This sort of thing will become even more critical as pubs prepare to have their £1,000 annual discount on the tax removed next year. Many larger pub and bar companies have turned to M&A activity to face off the headwinds. This consolidation at the top end is a useful way for companies to protect themselves and use economies of scale as a buffer against squeezed margins.  Indeed, M&A activity may explain the 4% rise in the turnover of the Top 50 pub and bar pub and bar companies last year, to £11.7bn in 2016/17 up from £11.3bn in 2015/16, according to our own research.

However, M&A is not an escape route for many smaller companies in the sector who still face the same challengers as their larger peers. This is because traditional lenders remain risk averse and raising funding can be difficult. However, once again, alternative finance providers can step in and help small operators be more acquisitive – as well as providing funding for cap ex on new interiors, upgrading kitchen facilities or introducing a wider selection of craft beers.

As we head into 2018, pub and bar companies are facing tough challenges as customers feel the pinch and broader economic uncertainties take their toll. However, there are still good opportunities for the best operators with the right partners.

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