The latest research reveals a concerning trend of pub and bar companies struggling to remain viable, as the number of insolvencies jumped by 13% to 530 in the last year.
This upward slope suggests that more pubs and bars could be driven out of business if the current economic climate doesn’t change, drastically diminishing social activity both within the hospitality industry and beyond it. It’s essential that businesses find ways to work together and weather these difficult times in order to preserve this vital part of society.
This is the third consecutive year pub company insolvencies have increased, and is driven by a sharp rise in operating costs, as well as a gradual slowdown in consumer spending in the sector and a rising increase in business rates, suggests UHY Hacker Young. Pubs have been squeezed by increasing staff costs due to the rise in the minimum wage, with the National Living Wage, paid to those aged 25 and older, risen twice in just over 12 months.
Since 2000, a quarter of pubs have closed in the UK, totalling more than 13,000 locations. Four out of five people have seen a pub close down within five miles of their home. Although the industry has been in decline for some years, recent evidence suggests the situation is growing critical for British publicans.
What’s most concerning is that the majority of these closures have been small, independent pubs – larger chains have been able to consolidate their business around bigger bars.
Pub insolvencies on the rise
Operators have found it difficult to adjust to changing consumer habits, in particular with millennial drinking habits hitting sales as the younger generation are drinking more alcohol-free beer, celebrating Dry January, and choosing not to drink at all.
A report from BMC (BioMed Central) public health says rates of teetotal young people (under 25s) increased from 18% in 2005 to 29% in 2015.
The weakness in the pound as a result Britain’s decision to leave the EU has also played a huge part, as pubs are having to pay more for imported drinks. Weak consumer confidence means pubs have found it hard to pass those cost increases to customers.
Peter Kubik, partner at UHY Hacker Young, said: ‘It is hard to see any short-term changes to the pressures on the pub sector.
‘That is not to say that the pub sector is in a hopeless situation. A lot of pub groups have improved profitability by adding more food sales and non-alcohol sales in order to increase footfall in slower periods of the week.
‘Upgrading premises to maintain appeal with younger drinkers can also help cope with weaker sales amongst that group. However, developing a food offering or refurbishing requires capital. Smaller pub groups are finding it hard to get bank finance at the moment or non-bank finance at competitive rates.
‘Hopefully, once the Brexit question is cleared up, high street lenders will be less nervous about lending to smaller pub companies.’
Why is insolvency on the rise for public houses?
The COVID-19 pandemic has had a devastating impact on the hospitality industry, with many pubs and restaurants forced to close their doors. While some businesses have been able to weather the storm, others have not been so lucky. In fact, the number of pub and restaurant insolvencies has increased significantly since the start of the pandemic.
There are a number of reasons for this, including the loss of foot traffic, the decline in tourism, and the restrictions on indoor dining. However, the most significant factor has been the decrease in purchasing power among consumers. With people cutting back on spending, pubs and restaurants have seen a sharp decline in sales. This has made it difficult for many businesses to stay afloat, and as a result, insolvencies have risen sharply.
The COVID-19 pandemic has had a devastating impact on the hospitality industry, but it is important to remember that it has also had an ripple effect on other businesses as well. As we continue to navigate these challenging times, it is important to support businesses of all types in order to ensure that our economy can recover.
Reasons why public houses are closing
An unfortunate reality in many cities is the closing of once beloved public houses. There are a variety of factors that contribute to these closures, such as increased competition from larger chains, rising rent costs, and changing customer tastes and preferences. Overwhelmingly high operation costs due to certain food regulations could also be a factor.
In addition, though customers may want an ever-evolving experience that public houses can’t seem to offer – particularly when it comes to convenience and accessibility – there can still be heartbreaking nostalgia in their absence. Ultimately, the sad disappearance of these establishments teaches us that if we want to preserve our local institutions, it is going to require creativity and support within the community.
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Are you a landlord or landlady of a pub or bar that worried about insolvency due to suffering with challenging trading conditions? Drop us a quick message and we will talk you though your options.
Read more: Insolvency advice for public houses
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.