Nigel Westwood, partner at Sanderson Weatherall LLP
THE market in 2010 was much the same as for 2009. It has been a challenging year for the sector, with margins squeezed with general austerity measures, the duty escalator and unemployment not reducing over the year which has affected business confidence at one end of the scale and consumer spending at the other.
This situation is not helped by the increase in VAT at the start of 2011, as many will be unable absorb such a large rise and will have to pass it on, affecting consumer demand.
There have also been and continues to be price pressures from the off-trade.
The market response has been mixed. Those operators, both freeholders and leaseholders, who are continuing to run successful outlets and who do not need to sell, clearly have not put their businesses on the market.
However, there are those who have had to sell due to restructuring strategies or business failure and so there have been several lower-end freehold and leasehold interests coming on to the market thus increasing supply.
This has mainly been major operators off loading large numbers of sites to generate cash and reduce debt but competition from the off-trade is also threatening the viability of lower end wet-led pubs, generally forcing them into disposal.
Cost and availability of finance is also still key and many prospective purchasers have been unable to obtain funding for purchase or funding at the right price, therefore impacting on effective demand. As a result, we expect continuing opportunities for cash buyers.
With the austerity measures in place, the increase in VAT and proposed changes to licensing, the bottom end of the market is unlikely to improve this year.
It will be a challenging year ahead for everyone but it has been challenging in the sector now for three and a half years and the truth is that the top operators will continue to prosper through innovative ideas, quality of service and accommodation, and superior and varied product ranges.
:: Nigel Westwood is Partner, Licensed & Leisure, Sanderson Weatherall LLP. Tel: 0191 269 0107