Pubs and breweries will face major financial losses, make no profit, and many will be forced to shut up shop if the government’s energy bill relief scheme is not extended for them beyond 31 March 2023.
This is according to a new report by Frontier Economics, produced for the British Beer and Pub Association (BBPA). Its calculations showed energy bills returning to their regular rate post-March would put pubs and brewers at a loss of 20% on average.
The study found that energy costs were currently the biggest threat to many firm’s viability, and would be even more lethal when the relief scheme ended in April. This was on top of cost inflation across other parts of their business, such as food & drink and wages, contributing to profit margins being erased.
Based on an analysis of industry reports, accounts and interviews with pub operators and brewers as well as a full review of the wider economic context from August to October 2022, the report noted how businesses had already made changes to mitigate against cost inflation where possible; from changing menu options to reducing opening hours. It flagged that energy costs were still hitting businesses hard and rise post-March could not be guarded against and would be crippling.
In addition to illustrating the pressures facing the brewing and pub industry, the report – produced in advance of the Autumn Statement – lays out different routes for intervention from Government to save businesses from closure, from extending the energy support package to reform of the business rates system.
Tim Black, Associate Director in Frontier Economics’ retail and consumer team, said: “Recent economic shocks of Covid, Brexit and the war in Ukraine have put sustained pressure on businesses. Our analysis shows the pub & brewery sector is facing a combination of surging costs – primarily energy, but also raw materials and wages – and falling demand, as consumers reduce their spending in the face of severe cost of living pressures.
“While there are different impacts across businesses and uncertainty on the outlook, the underlying economics of the sector makes absorbing these shocks incredibly difficult – and some firms will struggle to survive.”
The BBPA also highlighted that pubs and breweries across the country have reported cases of poor practice and profiteering by energy suppliers in recent months. Some suppliers have sought to make money outside the restriction of the cap through increasing prices on other parts of bills or cancelling contracts at short notice. In some cases, businesses are claimed to have struggled to find suppliers because they have been deemed to be ‘too vulnerable’ as businesses.
Emma McClarkin, Chief Executive of the BBPA, commented: “A long-term guarantee that energy costs and contracts will be fair and reasonable come the Spring cannot come soon enough for our pubs and brewers. They are planning now for the months ahead and need assurance that bills won’t rocket and completely wipe out profits.
“This report demonstrates the unique position our sector finds itself in, vulnerable to cost inflation across the entirety of its supply chain and acutely conscious of declining consumer confidence and wanting to avoid increasing prices for struggling customers. It shows how we have tried to remain resilient but that there are simply no further means for brewers and publicans to absorb costs.
“We are urging the Government to take seriously consider the impact rocketing energy costs will have not just on the businesses that have to pay them, but the communities they are embedded in and serve across the entirety of the UK. These figures paint a stark, very grim picture of what is to come if our sector does not make the cut for extra support come the 1st of April.”
NAM Implications:
- Given almost three years of perma-crisis…
- …it is assumed that hospitality (including pubs) will have applied all the cost-cutting measures possible.
- Meanwhile, the good/best-in-class will have survived.
- What is now required is the quantified context:
- How many pubs are viable?
- Average net profit margins?
- Anticipated incremental costs burden?
- How many/% are going to go bust?
- What extension time of the energy bill relief scheme would make a difference?
- Even with this additional context, little or no breath-holding is recommended re government action…
