What do they need to do to keep the lights on and beer flowing?
The hospitality sector feels as if it is under siege in every direction with pubs being directly in the firing line and some looking at potential business energy bill increases of 300% or more.
Due to this seemingly insurmountable crisis, their representatives have written to the current Chancellor asking for immediate government intervention citing that up to 70% of their members do not expect to survive the winter if nothing is done to ease business energy prices.
A letter signed by, among others, Greene King, JW Lees, Carlsberg Marston’s, Admiral Taverns, Drake & Morgan, the Society of Independent Brewers and the Campaign for Real Ale states, “We have entered one of the most challenging times for the brewing sector.”
While energy bills are expected to surge, their immediate future looks like being compounded by falling sales as customers look to save money towards their own rising costs, a shortage of essential supplies and a poor harvest pushing up prices. 35% of members said their utility costs have doubled while a further 30% said their costs have tripled.
They would like the government to reduce VAT and business rates, cap energy prices for small businesses and provide grants for renewable energy technology to help lower their energy use and protect the 940,000 jobs the pub sector provides to the economy.
Nick Mackenzie, Greene King CEO, said: “While the Government has introduced measures to help households cope with this spike in prices, businesses are having to face this alone, and it is only going to get worse come the Autumn.
“Without immediate government intervention to support the sector, we could face the prospect of pubs being unable to pay their bills, jobs being lost and beloved locals across the country forced to close their doors, meaning all the good work done to keep pubs open during the pandemic could be wasted.
“In some instances, tenants are giving us notice since their businesses do not stack up with energy at these costs. These are not just pubs but people’s homes and the hearts of the communities that they sit in.
“Government needs to extend the energy cap to businesses as well as households.”
One of the biggest problems for companies when they deal with business energy suppliers is that unlike households, they have to arrange their contracts that can often last years and might have to use a specialist broker that will connect them with suppliers to obtain the best possible price.
If they can’t find an acceptable fixed-rate contract then they move to an uncontracted “deemed” use rate which is uncapped and can rise exponentially as it is in line with market prices.
Anecdotal evidence from energy brokers suggests that some energy firms are only choosing to renew contracts with customers they already had – effectively withdrawing from the new business market. Others are not renewing even their current customers.
This can be down to the highly volatile wholesale energy markets that are being impacted by the Ukraine conflict which has made it harder for suppliers to price long-term contracts efficiently or with a degree of confidence. Others agreeing fixed-rate contracts have seen energy bills going up by as much as six times their original price.
Additionally, the energy companies themselves are struggling to convince credit insurers to provide cover in case their customers close down amid a general reluctance to insure businesses in the sectors that are under the most pressure such as hospitality.
Some suppliers are hedging this risk by asking for upfront bond payments – even from their existing customers.
The British Beer and Pub Association (BBPA) are finding that members are having to fight harder to find willing suppliers.
Chief Executive Emma McClarkin said: “With many energy suppliers now refusing to provide contracts to pubs, they are being put in further jeopardy because a lack of competition in the market is forcing them to take on extortionate contracts or remain in punitive out of contract rates.
One pub was asked for a £10,000 deposit from their supplier despite having no payments or arrears issues previously. When they quizzed them as to why the reply indicated that they considered the hospitality sector to be under the most pressure and would see a lot of failures in the coming months.
Pub owners and landlords understand that there is some natural fluctuation in their businesses and manage to plan accordingly every year.
But since 2020, each year has provided a unique challenge that has tested this wisdom to destruction in some cases.
2020 and 2021 saw the Covid-19 pandemic and subsequent lockdowns while the question for 2022 is going to be “how much are energy bills going up?”.
And even if their own bills are manageable, their customers might very well be cutting back their pub visits to meet their own outgoings, further reducing income for our beleaguered pubs.
The only thing we know for certain is that there’s still time to get some good, impartial advice and act on it.
We offer a free initial consultation for any director or business owner to discuss the unique circumstances of their own company and what they can do about it.
Based on the information supplied, our expert advisors will be able to work on a range of options that can be pursued depending on their ultimate goals.
Every day seemingly brings new negative headlines and further challenges, the best time to get in touch is always now. Only then the journey back to profitability can begin.