While our latest edition of the Market Recovery Monitor shows a small decline in licensed premises in the first quarter of 2022, the sector may be emerging from a tumultuous two years in better shape than some predicted. 

A net decline of 0.9% of sites since December highlights the ‘Christmas hangover’ that led some businesses to close after a final flurry of trading in December, underlining both the fragility of the sector and the importance of the festive period in feeding profit levels. With Christmas and New Year trading windows curtailed by further pandemic-induced restrictions, businesses saw vital sales slip through their fingers.

It is encouraging to see a smaller decline in sites than we have in past quarters – and robust performances from some within the industry – but the sector is still 9,200 sites (8%) lighter than when we entered the pandemic in March 2020.

Now, the end to VAT relief, rising inflation, continued supply chain issues, and labour shortages are likely to widen the gap further between the winners and losers in the industry. This could lead to even greater churn, impacting independents, sub-scale businesses, and those with less-than-compelling consumer propositions and weaker brands in particular. Soaring prices for consumers are meanwhile squeezing the spare cash they can spend on meals and drinks out.

The moratorium on landlord action also ended at the end of March and, as this expires, it may lead to more closures as landlords seek foreclosure due to unpaid rent. During this extremely challenging time, many businesses will be revisiting liquidity forecasts that may have become out-of-date and reassessing the validity of any capex and new site roll-out plans. Maintaining stability of supply will also be critical, as will be the careful consideration, testing and implementation of strategic pricing options.

The sector’s long-term future remains good, but many licensed premises remain extremely vulnerable, and we can expect more closures in the coming months. There will be plenty of openings too, but it is clear that hospitality’s road to recovery still has more bumps in the road ahead.