UK: Cheers Or Tears For The Licensed Trade?

Last Updated: 17 September 2012
Article by Colin Hardman

While the pub sector is showing signs of stabilisation after a number of difficult years of trading, there is still cause for concern for operators. Those who cannot react quickly to change should be particularly wary.

In recent years the licensed trade industry has suffered from the triple whammy of changes in government legislation (e.g. the smoking ban), falling consumer confidence and the recession. Price competition, driven in particular by oversupply and supermarket discounting as well as increasing costs (e.g. beer duty, business rates, wages and utilities) has had a sobering effect on gross margins.

Stable but fragile

2012 has seen some stabilisation in the industry, at least partly due to the exodus of competition from the market in recent years. Christie & Co has recently predicted that a further 2,500 pubs need to close before the sector can be competitive again. Household budgetary constraints will continue to have a negative impact on the sector, as it will for the leisure industry as a whole.

According to a recent survey by the Association of Licensed Multiple Retailers, costs finally appear to be stabilising this year, although gross margins were still down by 6% against last year. If there are any further cost pressures (for example if the proposed plans for 'tax stamps' on all British bottled and canned beers is introduced) then the fallout from the sector could be significant.

Debt burden still high

Many operators will also be suffering from the cost of servicing debt taken on in the pre-2008 halcyon days of the industry. Lenders have of course been increasingly concerned by the falling loan-to-value ratios on those customers' borrowing against their real estate assets. However, over more recent years, lenders appear to have gained sufficient clarity regarding their exposure to actively manage their portfolio of distressed customers.

There is certainly evidence of this at both ends of the transactional market, with an increase in deal activity levels (albeit with a heavy persuasion toward cash buyers) and also in formal insolvencies (a number of which we have acted on). Furthermore, there is little evidence of significant lending being made available to small and medium-sized operators.

Smith & Williamson has recently been involved with a number of administrations and Law of Property Act receiverships of licensed premises (including nightclubs, restaurant and hotels). In most of these cases the businesses were trading for a period and sold as going concerns.

Sector trends

Looking within the sector, there are variations in market performance. Geographically, London and the Home Counties are performing better, benefiting in recent months by the weather wash-out, the Queen's diamond jubilee celebrations and Euro 2012. It will be interesting to see where the level of demand will settle after the world has gone home after the London Olympics. A more frequent and careful review of performance against budget by operators and their traders is advisable.

The types of operators who are stealing a march on the competition are those in the value pub market (but only those who have strong controls over their cost base) and the niche, food-led operators (at the expense of the casual dining restaurants). It is becoming increasingly more important for local management to differentiate their businesses from the competition. They need to be able to anticipate their customers' requirements, price their products appropriately and buy in the necessary resources (in particular food, drink and staff) in the appropriate quantities to be competitive. Those who can predict these and adjust quickly to changes in the market will be the survivors and indeed the winners.

Proactivity is crucial

Faced with this challenging environment, it is our experience that many operators have ignored the warning signs of falling trade and diminishing profitability, disregarded mounting creditors and not kept lenders informed of potential cash crises. In short, under-performance can often be down to weak management, e.g. poor marketing, lack of controls and a failure to assess and react to changes in the market quickly.

Too many proprietors do not produce timely monthly profit and loss accounts. Starved of management information and, consequently, with no way of obtaining and reacting to key performance indicators, businesses predictably start to slide. In turn, when a client defaults on a loan or its lender has problems obtaining the information it needs to help it assess the extent of the client's problems, a loss of confidence can ensue.

Lack of management/trading information can be a significant barrier to a sale of a business in the sector, regardless of whether that sale is by management or through an insolvency process. In our experience, value will not hold up unless proper trading information can be provided to prospective purchasers. Lenders should ensure that all of their customers are producing relevant and reliable management information, especially where an exit strategy is likely in the short or medium term.

Independent business reviews (IBRs) provide an opportunity to assist operators improve their business, set it on a firmer footing and rebuild its relationship with its lender. Where it is concluded that management does not have the capability and/or the confidence of its lender, then assistance can be provided by Smith & Williamson, often alongside specialist interim pub operator companies, to improve performance as part of a turnaround/exit strategy.

With strong management manning the (beer) pumps, looking at the fundamentals of the business, producing meaningful accounts that can be used to monitor key performance indicators, implementing financial controls, focusing marketing efforts and embracing the process and the recommendations of an IBR, it is often possible for operators to work their way out of trouble.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.