Publican Sector Outlook: What does the future hold? - Deloitte
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Publican Sector Outlook:
What does the future hold?
The publican sector has been severely impacted throughout the COVID-19 pandemic,
with domestic and international businesses experiencing closures like never before.
Introduction as social distancing requirements will In this article, we look at the challenges
The pub and hospitality industry plays continue to impact on capacity and in facing pubs in Ireland and the impact
a significant financial and social role in turn profitability. COVID-19 has had on the industry.
its contribution to the Irish economy,
employing some 92,000 people across Despite the encouraging news of the We provide insight and analysis from
the sector, purchasing €1.1 billion worth vaccine rollout this year, it appears pubs Chris Kelly, Managing Director of the
of Irish inputs and exporting €1.25 billion and restaurants in tourism destinations Chris Kelly Group, who operate a number
worth of produce every year1. It has favoured by international visitors could of licenced premises in Dublin City
been an exceptional year for businesses experience a lag in recovery; limited centre and its suburbs, on his views and
operating in the hospitality sector. Rolling numbers of overseas visitors are experience in the industry, the current
lockdowns and repeated openings and expected for the rest of the year and challenges facing it, advice and key steps
closings of pubs has resulted in a year potentially into 2022, as consumers for those who may be in a stressed
with challenges never experienced consider the risks with international financial position and his outlook for
before. It has been particularly difficult travel. Data firm OAG stated that it the future. With the emergence of
for owners of ‘wet pubs’ who have could be 2022/23 before the volume of Private Equity investment and demand
remained closed for nearly twelve international fliers return to the levels for acquisitions, we also examine key
months. Looking at the sector from both that had been expected for 20202. considerations for licenced premises
a domestic and international standpoint, Domestic tourism is however expected operators in the months ahead.
businesses will undoubtedly continue to to benefit, as people opt for short stay
face reduced revenues throughout 2021 vacations at home.
1. The Drinks Industry Group of Ireland
2. www.reuters.com
1
Publican Sector Market Outlook
Pre-Covid Market The uncertainty surrounding Payroll and staffing: Costs prior
Over the last decade, changes in Brexit and the ongoing volatility and to the current public health crisis
consumer behaviour and an increasingly devaluation of Sterling has had a were challenging for businesses as
competitive landscape have led to an significant impact on the sector and employment rates in Ireland were very
accelerated churn in the pub sector operators across the border region in high across all sectors and it was difficult
which has forced publicans to efficiently addition to major cities such as Dublin for many businesses to attract and retain
adapt their operating models. and Cork where historically there was a good employees in the pub and services
large volume of UK visitors. industry.
Although the industry has enjoyed
strong growth following the last financial Rising cost pressures have been quite The trading environment across rural
crisis in Ireland, there were signs prior to challenging with a direct impact on Ireland had also been significantly
the current public health crisis that the profitability on the sector: impacted with the outlook for small
trading environment had become a lot rural pubs uncertain given the large
more challenging, as 2019 saw revenues Insurance: The cost of insurance has increase in rural pubs closing their doors
softening and cost pressures mounting become a large burden and while continuing. Regional pubs had to adapt
across the sector. additional premium increases have to make themselves a destination for
impacted on direct operating costs, there people to travel to, with the main change
Changing consumer habits has been has also been significant difficulty in being towards gastro-pub offerings, as
the single largest challenge faced by tackling insurance fraud, with the level of well as increased entertainment to drive
publicans over the past number of years management time and money required footfall into premises.
with a younger generation of consumers by businesses to mitigate against claims
now opting to socialise with friends in increasing significantly.
private settings before attending a bar/
club setting later on in the night while Rent: Additionally some publicans are
equally, consumers have become more battling with historical upward-only rent
health conscious in recent years; both review provisions in leases which has
changes having an impact on spend per led to unsustainable rent levels on top
head in the bar sector. of an outdated rates system with little
optimism in the sector that this will be
resolved in the short term.
2
Publican Sector Market Outlook
Mr. Kelly, commenting on the challenges City Centre footfall levels, and with it Mr. Kelly commented that prior to the
which face the sector upon reopening lunchtime and evening trade Monday to current public health crisis, the future for
stated that “whilst many operators may Friday. The reduction in tourism, events, the sector was challenging but optimistic,
be fearful of the economic impacts of and corporate travel will also have an with the Gastro Pub sector in particular
the crisis which are yet to come, I would effect, across cities and rural areas, having great potential for growth whilst
be equally concerned on how people’s tourism in particular for areas outside of the ‘wet pub’ model is now seen as
habits may have changed. With the Dublin. Certain rural locations will also almost a different sector post Covid
exception of two brief periods when suffer from a fall in corporate events but still did have potential prior to the
indoor dining was allowed, people have such as conferences etc, for example current crisis.
now been confined to their houses the upcoming months are usually the
for almost 12 months, it remains to be time for large trade union conferences Effect of Covid-19 on the Pub
seen if this will affect their habits going which take place around the country, Industry
forward”. presumably these will all be moving to a In March last year, pubs were asked to
virtual model this year”. shut their doors with immediate effect.
When considering the impacts on city While some gastro pubs were able to
based locations versus those in more Commenting on the sector outlook trade for a period during the summer
suburban or rural areas Mr Kelly’s views Morrissey’s Lisney state, “consumer months, and again for three weeks in
are that “city locations will suffer in confidence is likely to be connected December due to their ability to provide
their own ways, the increase in people to the national vaccine programme a food offering, the ‘wet pubs’ have
working from home will obviously affect which will be a key factor in businesses remained shut almost one year on from
returning to enjoying sustainable levels their initial closure.
of trade”.
3
Publican Sector Market Outlook
The level of liquidity required to retain key staff, key
suppliers and service ongoing debt obligations has been
significantly challenging across the sector given the
limited cash reserves held by many of these businesses
prior to the current crisis.
Drop in sales Given the strenuous environment at by having to close due to the current
The most obvious consequence of these present there has been limited notice pandemic. Proceedings were initiated
closures is the large loss of employment provided to certain sectors with regards by three Dublin bars - Sinnotts, The
and revenue for the sector, according closures where most recently pubs Leopardstown Inn and Lemon and Duke
to Drinks Industry Ireland, overall sales had to close at 3pm on Christmas Eve. - as well as Sean’s Bar in Athlone.
volumes were down 70.2% for the three This resulted in huge losses to many
month period September to November businesses who had to disregard large Mr. Kelly as part of our discussions stated
2020 compared to the same three month amounts of pre-purchased stock for that the outcome of the test case will
period in 2019. the Christmas period with no ability to have a large bearing on the ability of a
recover these costs to date. number of businesses to pull through
Despite Government supports, lender the current crisis but reiterated his
forbearance and reduced expenditure, In addition to the loss of value of stocks, frustrations that such a test case had to
businesses continue to incur unavoidable publicans were left in a situation having be taken to allow businesses within the
costs during the periods of closure to advise staff again that their jobs sector rely upon business interruption
resulting in increased liquidity pressures. were no longer available leaving 25,000 cover for 12 to 24 months of losses.
The level of liquidity required to retain employees3 facing another extended
key staff, key suppliers and service period on the Pandemic Unemployment Reflecting on his own business (CKG),
ongoing debt obligations has been Payment. Repeated closures have caused and steps taken with regards his
significantly challenging across the sector huge personal and financial stress to operations last March, Mr. Kelly outlined
given the limited cash reserves held by business owners and staff, with the how he “immediately carried out a review
many of these businesses prior to the uncertainty surrounding their jobs and of all his operating costs and engaged
current crisis. future trading opportunities unknown. with each of his key suppliers in an effort
This has had a knock on effect to the to protect cash reserves of the business
New research by the Drinks Industry workforce from this sector whereby and maintain a level of liquidity in his
Group of Ireland states more than 20% personnel are now seeking employment business to meet costs”. CKG availed of
of pubs in Ireland have continuing costs in other areas of our economy resulting Local Authority Restart grants, Covid
of up to €2,000 per week to sustain for in key skill sets being lost when the Restrictions Support Scheme, and the
items such as salaries, salary top-ups, sector does reopen. Wage Subsidy Scheme to stem the losses
rent, and maintenance of premises. within his group but points out that the
These statistics should be of great Welcome News sector now needs clarity to ongoing
concern considering 60% of publicans There was some welcome news support levels from the Government and
believe that government subsidies recently for the sector when the High commitment that they will continue for
cover only 20% or less of their costs Court issued a decision in respect of as long as the crisis lasts.
per month, while many publicans have a “test case” brought by a number of
invested a significant amount of CAPEX publicans (including Mr. Kelly), regarding Commenting on the other challenges
to their premises to ensure adherence business cancellation insurance cover within the sector Mr. Kelly stated that
with relevant health and safety in place prior to the public health crisis. he “has tried to retain as many key staff
precautions and Government guidelines. In what was considered a landmark as possible, particularly in management
This situation is only compounded with decision, the outcome of which affects positions, but it is inevitable that
the pub’s inability to generate very little claims made by more than 1,000 Irish some may decide to seek alternative
revenue over the past 12 months. pubs and restaurants, the High Court employment in other sectors as the
determined that the policy subject continuing uncertainty drags on”.
to the case, did cover losses incurred
3. The Drinks Industry Group of Ireland
4
Publican Sector Market Outlook
Additional concerns: Market Activity – Private Equity, The report also stated that the impact
• Retention of staff will certainly be an acquisition and consolidation of Covid on the Licence market for
issue as those employed in the sector According to Morrisey’s Lisney Licensed extinguishment and transfer purposes
look to other industries for longer term Premises market review for 2020, was a reduction of value in the order
employment and job security. demand remained strong throughout of 20% to 25% with prices somewhat
• Accumulated debt piles accrued 2020 with many purchasers pursuing stabilised at €40,000.
from the periods of closure will leave opportunities via off-market approaches.
many businesses in a vulnerable In illustration of this point, 23% of market The future value of licences will ultimately
position when Government supports transactions accounted for off-market be influenced by their availability and
and creditor forbearance filters out. sales realising 49% of total market value current value could possibly reduce
According to research carried out by in 2020. 7 property sales concluded further should a large number of licences
the Drinks Industry Group of Ireland, during the Covid period of 2020 totalling be brought to the market or cease
one in four publicans have accumulated approximately €12.4m and a further 7 to operate due to the impact of the
debt of over €20,000 while 15% have properties at contract stage totalling a pandemic.
accumulated over €50,0004. further combined €10.75m.
• Insurance Costs whilst the recent Looking forward, Morrisey’s Lisney
ruling in favour of publicans against Within the sector, the emergence of believe “the initial months of 2021 will
FBD Insurance in respect of their Private Equity has become noteworthy remain relatively quiet with limited public
business interruption cover is positive, and whilst traditionally licensed offerings being made to the market,
it will likely result in higher premiums in premises have been acquired by owner however, they are optimistic for the
the longer term. operators that actively participate in the future of the sector as a whole, citing the
• Change in consumer habits after a running and operation of the premises, industries resilience over the course of
year of home drinking at off licence Morrisey’s Lisney have reported the last year including the adaptability
prices, may result in consumers seeing increased activity in the market by and creativity of many publicans in the
pub prices as bad value for money. Private Equity funds. “Over the past 24 market”.
Publicans may need to increase prices months we have seen private equity
slightly to make up for the long closure take a considered interest in the Dublin Mr Kelly in considering potential
periods, but consumer resistance to licensed premises property market. opportunities in the market and whether
any price hikes will definitely be a huge This is due in part to the recovery of the we may see consolidation or an increase
factor. sector throughout 2018 & 2019, and in larger groups such as his holding a
• Liquidity Issues and access to credit indeed early 2020 witnessing an uplift number of pubs, he feels “there will be
ability to raise new finance and/or in both trading and underlying property opportunities and while it’s a challenging
access credit once businesses are values, but also in part to increased environment for all operators, the Wet
fully operational again will certainly competition within the investment sector Pub is such an intrinsic part of our
be a challenge particularly where thereby encouraging private equity, and society and culture, I feel confident
there are legacy COVID-related debts other investors, to seek opportunities for it’s future. Unfortunately there will
accumulated. outside of the traditional investment inevitably be certain businesses that are
routes.” unable to survive, and this will obviously
result in buy opportunities and group
consolidation”.
4. The Drinks Industry Group of Ireland
5
Publican Sector Market Outlook
What steps can businesses take? • Seek help - Business owners should
working capital in the business to allow
not be afraid to seek help from
We asked Mr. Kelly based on what he had for a reopening in due course when
specialised advisors. Experienced
learnt from navigating the last crisis, still restrictions are lifted will be key;
practitioners will often be able to
fresh in the mind of many in the sector, • COVID Supports - As noted earlier
provide an options analysis for the
what advice he would give to those who there are a range of COVID support
business to assist in determine the
may be in a stressed financial position. measures available to businesses at
optimum strategy, to protect long-term
present in the form of Government
value, and the underlying asset base of
“It may seem like a cliché, but engage supports and grants and every
the business.
with your lenders and suppliers business should ensure that they are
early. If you are in a highly stressed availing of these;
Given the underlying liquidity challenges
position you’re going to need to make • Open Dialogue - Early engagement
for all stakeholders in the industry,
arrangements with both, simply ignoring with key stakeholders of the business
by developing an appropriate options
the problem won’t make it go away. such as trade suppliers, staff members,
analysis, maintaining open dialogue with
Lenders will be aware of issues in the and funders, is extremely important.
all stakeholders, and seeking help when
sector and although some suppliers Consensual negotiations should be the
necessary, publicans can successfully
may well be facing their own challenges, default starting position for businesses
navigate this period of volatility.
communication is key”. in distress. Given the levels of distress
across all sectors in the Irish economy
Advice from Deloitte at present, engaging early is likely to
Our Deloitte Restructuring team would yield the best outcome for businesses, “It may seem like a
also recommend the following practical
steps which businesses can take given
and should mitigate the likelihood of
a stakeholder or secured creditor of cliché, but engage
the current challenges identified;
• Forecast and reforecast - Whilst
the business being “forced” to take a
position due to perhaps an event of
with your lenders
the uncertainty associated with the
threat of further/extended restrictions
default or inaction;
• Maintain resilience - while the
and suppliers early.
makes forecasting for the year ahead priority for many in the sector will be If you are in a highly
a very difficult exercise, it is crucial to secure the financial position of their
that publicans continue to monitor business, there is also a need to focus stressed position
and scrutinise all cash outflows in the on leadership and staff commitment
months ahead. Regular forecasting is where possible. Ensuring that there is you’re going to need
encouraged, and whilst cash reserves
will already be depleted for many
a proactive culture to decision making
and implementation or a recovery plan to make arrangements
publicans, ensuring there is a level of will be key to the survival of business
during the pandemic;
with both, simply
ignoring the problem
won’t make it go
away. Lenders will be
aware of issues in the
sector and although
some suppliers may
well be facing their
own challenges
communication is key”.
6Publican Sector Market Outlook
Conclusion
While the battle for many publicans The light at the end of the tunnel for Additionally changing consumer
became a last-ditch attempt to stay many is the rollout of the Covid-19 trends will likely present new
afloat during 2020, the outlook for vaccines. Current indications from opportunities for existing and new
2021 unfortunately remains Government suggest that it will likely market entrants as the sector
challenging. be the end of the summer before 70% diversifies to promote and engage
of the population are vaccinated. with consumers to drive footfall.
The survival of certain pubs is
contingent on the business model of There will be some hope that a Deloitte’s restructuring advisory team
high consumer footfall at weekends government roadmap will set out the in Ireland, supported by our wider
and peak seasons, a model that is best and worst case scenarios for Financial Advisory services (including
materially challenged in the current re-opening, with Living with Covid tax, risk and accounting advisory
public health crisis and maybe beyond plan” a regular occurrence. The teams), is best placed to advise clients
due to a long term change in prospect however of government in navigating the current trading
consumer habits. allowing wet pubs to reopen in the environment. We have already
absence of mass vaccination is advised a number of businesses in
The overall impact of the economic considered very remote at this time. seeking available options and have
impact following Covid-19 is still provided support to clients in
unknown, with many differing views Whilst some publicans may never navigating the current volatility in the
ranging from a significant economic reopen their doors, for others this will market.
uplift as consumers seek to spend bring opportunity. Smaller businesses
following lockdowns, versus those with less access to liquidity are likely
estimating a recession following an to remain most challenged, we believe
initial “jump” in economic activity, to a this will lead to further consolidation
significant economic impact for a across the sector.
number of years.
7Contacts
Mark Degnan Dublin
Partner, 29 Earlsfort Terrace
Restructuring, Dublin 2
Financial Advisory Services, T: +353 1 417 2200
madegnan@deloitte.ie F: +353 1 417 2300
Cork
Daryll McKenna No.6 Lapp’s Quay
Director, Cork
Restructuring, T: +353 21 490 7000
Financial Advisory Services, F: +353 21 490 7001
dmckenna@deloitte.ie
Limerick
Deloitte and Touche House
Ailbhe O’Dwyer Charlotte Quay
Manager, Limerick
Restructuring, T: +353 61 435500
Financial Advisory Services, F: +353 61 418310
aiodwyer@deloitte.ie
Galway
Galway Financial Services Centre
Moneenageisha Road
Galway
With thanks to T: +353 91 706000
Mr. Chris Kelly, Managing Director CKG F: +353 91 706099
Mr. Tony Morrissey, Director, Lisney
Belfast
19 Bedford Street
Belfast BT2 7EJ
Northern Ireland
T: +44 (0)28 9032 2861
F: +44 (0)28 9023 4786
Deloitte.ie
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