In the previous edition of Market Recovery Monitor, we noted that pubs were blazing a trail in re-opening, with only 6 in 10 casual dining restaurants open at the end of July compared to 9 in 10 food-led pubs. We predicted that the Eat Out To Help Out campaign (EOTHO) would drive re-openings across the sector, due to:

  • Operators having the confidence in hitting break-even trading figures during the early part of the week; and
  • Consumers building confidence as they become more used to visiting restaurants and pubs under COVID-secure conditions.

This was borne out in the numbers shown in the latest edition of Market Recovery Monitor, as over 100 million EOTHO meals were sold in August, driving 15,500 venues re-opening during the month, equivalent to around 500 per day

This provided a shot in the arm to the restaurant sector, with over 84% of casual dining restaurants open at the end of August, and over 76% of total licenced premises open. This is great news for restaurant operators - although the independent sector remains sluggish, with approximately one third of independent restaurant businesses remaining closed.

However, further challenges loom over the horizon, particularly for wet-led or late night operators who have understandably been slower to re-open post-lockdown. These businesses have opened more slowly due to operational considerations and uncertainty of delivering break-even demand levels in the (unsurprising) absence of a government funded half price scheme for alcoholic drinks.

The recently introduced restriction of gatherings to six people is likely to have a significant impact on those businesses that are predicated on providing an atmosphere for people to get together and socialise in groups.  When considering the potential impact of this restriction, we believe that restaurants and pubs are likely to be more resilient to this challenge due to broader day parts and the typical customer visit, but nightclubs and wet-led bars, who typically have multiple large groups in the venue, are likely to be the hardest hit.

Q4 is often the critical trading period for wet-led operators, and many have continued to fund losses during the lockdown period based on an ability to rebuild balance sheets and generate cash by trading through to the traditional peak Christmas party season. The duration of the government restrictions are uncertain at this stage, but if Christmas parties are effectively made illegal, Q4 forecasts may now have to be tempered back, and contingency plans will need to made. This may include some tough decisions for management and investors.

Add to this the scheduled closure of the furlough scheme at the end of October, the upcoming September rent quarter (although the extension of the rent moratorium has provided some breathing room for operators) and the spectre of government mandated curfews, and the headwinds appear significant. Without government intervention or significant backing from lenders or equity holders, operators may be forced to quickly determine which of their venues are viable over the short to medium term, and which will be forced to close permanently. Sites that are not open by the end of October may not re-open under current ownership – the next few weeks will be critical and will highlight those in the last chance saloon