The Operator - Enjoy the feel good factor in 2011

2 March 2011

The start of a new year is a time when new resolutions are forged and past difficulties readily forgotten. If 2010 was an Annus Horribilis for the Licensing, Hospitality and Leisure industry then, not withstanding the immediate impact of the rise in VAT, the first few weeks of 2011 seem to suggest a return to better times. According to the popular press, the long-forgotten “feelgood factor” is to make a return. April brings with it a Royal Wedding (albeit one reflecting the austerity of the times) and the build-up to the 2012 Olympics is likely to have an increasing impact as the year progresses. Operators across the industry will want to see this optimism translate to their bottom line, but they should continue to keep a close eye on the day to day issues affecting their own businesses. If the last six months are anything to go by, it will be the creative and flexible operators who prosper in 2011, provided they don’t fall foul of an increasing number of legal “banana skins”.

In the Autumn 2010 edition of “The Operator”, we looked in detail at the health of the pub, hotel and restaurant sectors. Whilst we could see definite signs of life in a number of areas, particularly for those operators who had ventured beyond traditional models (for example, those operators who had re-positioned their brands towards sale of food and coffee, and to emphasise their “green” credentials), our concern was that this would be stifled by a new wave of ‘red tape’ and regulation from the Government. In this edition, we look at some other legal developments impacting on the industry, and suggest ways in which your business might respond to them to minimise disruption to its trading in 2011.

In their article on page 04, Jonathan Grimes and Saba Naqshbandi identify the key principles to emerge from a number of important health and safety prosecutions in what has been a particularly bad year for some prominent operators in the UK. Restrictive covenants are another area where headlines have been made in recent months, and in their article on page 06 Neil McAlister and Vicky Lord summarise the effect of such covenants on licensed premises and the means by which they can be overcome. They also comment on the Government’s proposal to launch a public consultation in the summer of 2011 on whether covenants should be outlawed. On page 08, Martin Pratt looks at what might be a more immediate problem affecting employers – the rather unexpected fallout from the seasonal festivities. On page 09, Melinka Berridge considers whether banning ‘problem’ customers from licensed premises is as ‘problem-free’ as it may at first appear. Finally, on page 10, Ben Kemp sets out the Government’s proposals for future regulation of the private security industry, and looks at how this might impact on operators who have only just started to feel the benefit of the existing regime.

In 2010 we looked at the proposals published by the Government to overhaul the liquor licensing regime. We stressed the importance to operators of engaging with the Government and responding to the public consultation. The Public Bill Committee is to scrutinise the Bill between 18 January and 17 February 2011 and is still taking submissions from the public. If you have not already done so, we would encourage you to make your views known on this important area of legal reform. 

Turning back to some of the macro economic factors likely to affect the Licensing, Hospitality and Leisure industry, the rise in VAT to 20%, when added to the Government’s other austerity measures, has understandably led to much gnashing of teeth amongst already beleaguered publicans. The British Beer and Pub Association have produced figures which suggest that this rise will increase the average price of a pint by 6p (for the first time topping the £3 barrier), and at the same time they pointed to research from New Oxford Economics which estimates that the industry will lose in excess of 8,000 jobs as a result of the new rate.

For those on the acquisition trail, or those seeking funding for their existing business, although there does seem to be a small revival in the private equity sector, this seems to be at the higher end of the market. This is evidenced by TDR Capital’s purchase of 333 Mitchells and Butlers pubs for £373 million, which completed early this year – the biggest deal in the pub sector for some time. Otherwise, private equity investors seem to focus on sectors which are perceived as offering higher, short-term growth, such as technology and biotech.

There seems little evidence that traditional bank lending is any easier to acquire. As for the larger corporates, many are still saddled with the debt burden from overexpansion immediately prior to the recession. Punch Taverns is a case in point – reports in the press suggest that it is considering defaulting on existing loans to shed over 5,000 of its less profitable pubs. Notwithstanding some interest apparently emanating from a number of private equity outfits, this is alarming news for the operators concerned. The entry into administration of the Pontins holiday camp chain was inspite of the fact that in recent years the business had diversified and bookings had held up reasonably well, although margins in this the lower end of the market were undoubtedly tight. The larger corporates will also be casting a wary eye at the restrictive covenant consultation, and on the support potentially being offered by the Localism Bill to communities wishing to acquire their local pub. The Bill is partly intended to curtail the flow of local pub closures (the weekly figure for which is apparently still in the high 20s) and to buy sometime for local funding initiatives. Whether these developments will open up a rift within the hospitality sector between larger operators and the smaller independents remains to be seen.

However, the evidence suggests that there is still plenty of potential for the more enlightened operator to grow his or her business. Those pubs, hotels and restaurants which provide healthy, seasonal food by using locally grown produce seem to be faring well, particularly those who focus on times when business used to be slack, for example in the mid-afternoon and at breakfast. These are businesses which have learnt their lessons in the toughest of times, and as a result are already run in a creative and flexible fashion. The operators concerned are well aware that customers now expect to see “deals” with an obvious measure of value, and this is what they are aiming to deliver.

From a marketing perspective, operators are communicating with customers in more direct ways, with the aim of increasing loyalty from those who are local to a particular outlet, and in favour of the brand as a whole. It is now commonplace for a local independent pub or restaurant to be running its own website (and even to be taking online orders for food), but increasingly it seems to be those who are prepared to embrace the most recent developments who standout from the crowd. Operators across the industry are now turning to smart phone applications and social media such as Facebook and Twitter. As is to be expected, the larger corporates are making the running with such new media (with Burger King and Domino’s Pizza recently running successful Facebook campaigns). Given the relatively low costs of entry, there seems no reason why independent operators should not also jump on this particular bandwagon.

If you are a corporate or individual operator in the Licensing, Hospitality and Leisure industry, then we at Kingsley Napley offer a fully integrated service, advising you on all applicable regulations, and on all commercial issues which you may encounter in running your business. Our team of specialist lawyers can advise on all applicable issues in the sector and can provide you with peace of mind that your business is operating lawfully.

We advise in relation to applications under and compliance with the Licensing Act 2003, and represent operators at hearings should applications be contested. We advise on the public law remedies available to operators when the decisions of public bodies impacting their business maybe illegal, irrational or improper. We advise on compliance with and investigations in respect of all other relevant legislation, for example relating to Health and Safety at Work, Fire Safety and Environmental Health. In addition, we advise on all aspects of employment law (including on dismissals and discrimination) and on any immigration issues in relation to the hiring and transfer of staff. Finally, should you be buying or selling a business or a property, or seeking investment, we can advise you throughout the process from consideration of your underlying goals to driving and completing the transaction itself, as quickly and efficiently as possible.

With innovative and experienced lawyers, we are known for our ability to present clients with pragmatic and cost effective legal solutions. For further information, please call +44 (0)20 7814 1200 to speak to a member of the team.

James Fulforth, Corporate and Commercial

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