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Graeme Smith
Partner & Managing Director, EMEA Leader, Risk Advisory
London
Prevailing economic conditions meant 2023 was a difficult year for many industries, particularly those exposed to discretionary spending, and with high operational gearing, like hospitality and leisure businesses.
Britain’s number of licensed premises dropped by 0.8% in the fourth quarter of 2023, according to the latest Hospitality Market Monitor from AlixPartners and CGA by NIQ.
The figure is equivalent to 803 net closures in three months, or nearly nine per day. It represents an acceleration of closures from the third quarter of last year, when numbers fell by only 0.3%, but is much healthier than the average of 24 closures per day that the Monitor recorded in mid-2022, when post-COVID business failures were at their peak.
Our latest report also shows that Britain had 99,113 licensed premises at the end of December 2023 – nearly 3,000 fewer than 12 months earlier, and 16,000 fewer than at March 2020, the point at which COVID-19 arrived in Britain.
However, it was and clearly remains an uneven market. Well capitalised, well-run establishments in resilient parts of the market enjoyed continued growth through 2023, whereas smaller independent businesses struggled to absorb the increase in operating costs. The independent sector has been hit particularly hard, with numbers falling by a sixth (16.6%) since early 2020. By contrast, managed hospitality groups have recorded a net decline of only 4.0%.
While the long-term headline-grabbing pub closure rates are on the face of it shocking, they speak to a societal shift, from drinking-out to more food-led occasions. This has happened amid a 20-year structural expansion in food venues across the country. It is a hospitality mega-trend of the first quarter of this century. The other material shift in behaviour in recent times is that of young consumers moving away from large late-night venues, which has left this segment of the market facing a challenge to adapt.
Leading operators have predicted that 2024 will likely be a year of two halves, with continuing volatility in the first part, allied to cautious optimism for a stronger second half of the year. The closures of a number of high-profile independent businesses and ongoing issues faced by the late-night sector suggest this could be borne out. We are optimistic that the relative stabilisation of closure numbers seen in the current Hospitality Market Monitor figures will continue.
As we head into 2024 the outlook looks brighter. With inflation pressures easing and financing costs looking like they have peaked, many operators are looking forward to a more profitable year ahead.
These first signs of a break in the economic storm have played a part in the recent injection of much-needed impetus into the UK M&A market, with deals for The Restaurant Group (TRG), City Pub Group and Ten Entertainment. The return of differing types of investors, and specifically of global buyout giant Apollo (acquiring TRG and providing financing to Stonegate), will draw others to the market.
Read our full Hospitality Market Monitor report below:
