Last Orders
Businesses experience increasing financial pressure if their sales volumes remain relatively static, but their costs rise at a faster rate than their sales prices. Businesses can then change from making a profit, to breaking even, to making a financial loss. Many pubs facing this dilemma are pulling their last pints: more than 150 pubs closed in England and Wales from January to March 2023, which is nearly twice last year’s average rate of closures. The current rate is expected to increase throughout 2023.
Most pubs’ finances had already been stretched due to the terrible trading conditions during the pandemic when pubs had to restrict customer numbers and sometimes close for extended periods. They hoped for a trading boom after the end of the lockdowns. However, people’s habits changed: drinking and dining at home and streaming shows are now part of the daily routine; younger adults are consuming less alcohol; people are increasingly meeting at coffee shops or parks instead of pubs.
Fewer customers than expected returned to the pubs after the pandemic. Some pubs offered discounts on food and drinks to increase footfall, but the sales volume changes seldom compensated for by the fall in margins. City pubs also failed to recover the ‘city lunchtime and after work trade’ because so many people continued to work from home several days each week.
Then came the cost-of-living crisis, which lowered household’s disposable income, reduced the average frequency that people visited the pub each month, and lowered the average customer spend. Pubs’ sales volumes fell at the worst possible time. The inflationary pressures in the pub industry became ferocious, particularly in respect of energy, food, and labour.
While the Government’s energy bill relief scheme offered £18 billion worth of discounts to all businesses between October 2022 and March 2023, its replacement from April 2023 offered £5.5 billion. Many pubs no longer qualify for this relief. It is estimated that an average pub losing this relief will need to increase its turnover by 11% just to breakeven. A lot of landlords are claiming this is not possible in the current climate. They are appealing to punters to support venues at this ‘make-or-break time’. They are asking the Government to take immediate action. They want higher energy bill relief; larger beer tax reductions; less regulation; business tax relief schemes to be extended beyond 2023. Otherwise, they claim that hundreds of big chain pubs will close, and over 6000 small, independent pubs will face financial catastrophe; many staff will lose their jobs; publicans will lose their homes. It is likely that thousands of traditional pubs pulling pints will be converted into offices, expensive houses, or flats- a sobering thought for those who believe pubs are the heart and soul of cities, towns, and villages. Last orders, anyone?
The Management Accounting Team
Department of Accounting, Finance and Economics