Coronavirus: Drinks retailers need a strong on-trade
By Nick Gillett, managing director, Mangrove Global
Things are pretty grim in hospitality right now. We’re all aware of that. Fast approaching is the unappetising prospect of it getting a whole lot worse. And whilst the immediate impacts of this are being felt most strongly in the on-trade, ultimately the effects will be also felt by retailers and consumers. Drinks retailers need a strong on-trade.
OK. I’m clear that the increase in demand and sales for the off-trade is good news in the short-term for retailers; however, a general constriction in the on-trade, where much of the energy and innovation originates to launch new brands and drive customer awareness, will ultimately impact the off-trade too. The big global guys will work to protect their position, focusing on replacing lost on-trade volume. Good news for some perhaps, but this move will favour those operating at scale, and will likely squeeze the independents and those operating at the margins.
An obvious consequence of a slow-down in the on-trade will be a reduction in the breadth and variety of products on offer, but there will also be unintended consequences as well, for example insurers withdrawing credit to the sector as a whole: just this week we’ve seen credit limits withdrawn on some key clients including those in e-commerce and specialist retail, despite reports of an upturn in trade.
This could affect everyone, both large and small, making cash flow and consequently trading more difficult as access to the same credit terms is no longer available.
It seems counter intuitive to wish for a strong on-trade if you are retailers, but I would suggest that everyone in the sector is stronger together.
So, what’s my thinking on the on-trade situation right now?
I’m being lured into a false sense of security: whilst money is still slow and the much vaunted JRS is still to pay out, personally I have a sense of progress as my own experience of support and funding is promising, although it’s yet to produce concrete results.
However, I fear that this might be the only positive news for months to come for the hospitality industry and supply chain. If the Government doesn’t support a cohesive and integrated solution to reopening the on-trade at the right time, it could decimate the industry for the long term.
So, what does the right solution look like? Some of the more experienced and knowledgeable people within the industry are already making representations to the Government, including Kate Nicholls, Chief Executive for UK Hospitality (@UKHospKate) and Johnathan Downey (@DowneyJD) who, aside from being an experienced operator, is aiming to bring the whole sector together under the umbrella of Hospitality Union 9.
Both highlight the danger of huge job losses if a lockdown is partially relaxed but restrictions still apply to the hospitality sector. It would be folly to remove the job retention scheme before trade can be built up to support the businesses: let’s face it, very few restaurants can be economically viable with social distancing between tables. They just don’t generate those sorts of profits.
Downey has offered a solution which requires operators and landlords to work together under his #nationaltimeout idea, which defers rent payments for tenants and debt payments for landlords. It has its merits, as it doesn’t require Government funding but does require some supporting legislation. However, all this does is buy an embattled sector more time.
Hospitality is not alone. Many sectors are experiencing difficulties. But if the Government restrictions on the on-trade continue, it will mean a stark choice between an extension of the JRS or mass unemployment.
Within the supply chain, new challenges are appearing on a daily basis. For example, the flow of money to settle existing debts is embarrassingly slow as companies of all sizes hoard their cash. Some of the wealthier players need to have a long hard look in the mirror and examine their processes to see if they can do more.
Most credit agencies have turned negative on the sector – hardly surprising maybe, but some of the reductions in insurable credit limits defy wisdom (some of these are online companies reporting record numbers) and store up a potential challenge in the months to come. Some of these limits have been reduced to 30% of what they were previously. This means in normal times these companies would be having to make early payments (before credit terms due) to continue to receive goods or companies would have to let them trade uninsured.
This will mean most wholesalers, brewers etc having to pay for goods before they get paid themselves and putting their cash flow under enormous potentially unsustainable strain causing failure of otherwise healthy businesses. They need and deserve support which I suspect might have to be Government guarantees for a foreseeable period of time.
So, I have updated my wish list to the Government:
- Work with the likes of Kate Nicholls and Johnathan Downey to support the hospitality sector. They are rational and realistic, and are asking for support not bailouts. Without it, all the JRS will do is postpone the unemployment figures for a period of time.
- Look at the supply of credit. This isn’t sector specific but the insurers may end up being the death knell of many a good business
- Extend the JRS or other support to incentivise Hospitality to retain staff. We really want to, but anything other than a full opening (not likely) will make this impossible
- We need this information now. Deadlines are rapidly approaching for large companies for redundancy consultation and smaller companies are only two weeks behind that.
We know that not everyone will survive, we know that there isn’t a perfect solution and I acknowledge the speed of action mean you have to evolve schemes as holes appear but we are edging closer to a doomsday scenario which ironically will start when lockdown finishes.
Ultimately, the long-term potential damage isn’t about how or where people choose consume, but that people fall out of the habit of drinking altogether: drinking at home isn’t a healthy or sustainable activity, so we must all hope that life returns to normal and people are able to celebrate by getting back out to enjoy social occasions soon.