Reasons to be cheerful – UK leisure ready and waiting
The pandemic’s silver liningThere is a grim irony that COVID-19’s exacerbation of longstanding structural difficulties in UK hospitality has thrown up undeniable growth opportunity for well-funded businesses. Increasing availability of prime sites at ever cheaper prices and on more flexible terms and the erosion of competition (estimated loss of up to 30% of restaurants) with the consequent increased supply of high-quality staff stand in marked contrast to pre-pandemic chronic overcapacity, frequency of ‘me too’ product, intense cost pressures and narrow margins, compounded by Brexit-led economic uncertainty. To this end, surviving companies have strengthened finances and accelerated implementation of initiatives, such as the use of technology in managing labour costs and driving customer loyalty. Delivery has predictably excelled, offering scope for operators with the right scale and brands.
Pushing at an open doorIn addition to the boost to domestic leisure from persisting uncertainty about foreign holidays in 2021, there is welcome industry consensus ahead of reopening about pent-up consumer demand and a treat mentality, as shown by buoyant trading after the spring 2020 lockdown and despite subsequent and frustrating restrictions. Since the start of the pandemic, household savings have increased and household debt remains mostly unchanged, largely owing to a fall in spending on non-essential items over lockdown (the Q220 household savings ratio was the highest ever). For those who have suffered financially, low-ticket domestic leisure may well be an attractive option. Potential beneficiaries (see page 7) cover a mix of activities from family entertainment centres and escape rooms to gyms and hospitality.
The value of vaccinationThe UK has pushed ahead with a world-leading vaccination programme and looks set to emerge at the head of the pack from the pandemic. As social distancing and lockdowns give way to social spending, the leisure entertainment and travel sectors may be set for an earnings-based recovery. Valuations may have recovered but this relative earnings momentum may point to further outperformance in the months ahead.
- Extension to a pause on business rates: a 100% holiday will continue until the end of June, with the remaining nine months of the financial year seeing a discount in business rates by two-thirds.
- Extension to cut in VAT: a discount to 5% will continue on food, non-alcoholic drinks, accommodation and attractions until the end of September, when it will rise to 12.5% (still below the normal rate of 20%) for a further six months.
- Extension to furlough scheme: the Coronavirus Job Retention Scheme, which had been due to close at the end of April, will run until the end of September. Employers will pay 10% towards the hours their staff do not work in July, increasing to 20% in August and September.
- Increase and extension in grant amounts: under a business restart scheme, grants of up to £18,000 may be available.
- Hollywood Bowl UK’s largest tenpin bowling operator (64 sites).
- Ten Entertainment Group Family entertainment centres (46 sites) anchored on tenpin bowling under Tenpin brand.
- Gym Group UK’s second largest operator of low-cost, no-contract gyms (186 sites).
- Brighton Pier Group Brighton Palace Pier (free entrance; wide range of attractions) and nationwide premium bars (nine sites) and indoor mini-golf (eight sites at retail and leisure centres).
- Everyman Media Independent operator of premium cinemas (35 sites,117 screens).
- Escape Hunt Escape room experiences (10 sites).
- Domino’s Pizza UK’s leading pizza brand (over 1,100 stores).
- Restaurant Group Nationwide restaurants, mainly Wagamama and Frankie & Benny’s (c 280 sites), pubs (c 80 sites) and travel concession catering (c 35 sites, primarily at airports).
- Loungers Café/bar/restaurants in England and Wales: Lounge (138 sites) and Cosy Club (30 sites).
- Fulham Shore Casual dining, mainly in London and south of England: Franco Manca pizzerias (53 sites) and The Real Greek restaurants (19 sites).
- Various Eateries South-East England. Coppa Club multi-use all day, terrace, café, lounge, bar and workspaces (seven sites, of which two with joint hotels) and Tavolino Italian restaurant (one site).
Pubs and bars
- Fuller’s Premium pubs in the south of England (almost 400 sites, of which over 30 offer accommodation – c 1,000 rooms).
- Young’s Premium pubs, principally in London and the South East (c 270 sites, of which c 30 offer accommodation).
- City Pub Group Premium pubs across southern England and Wales (48 sites).
- Nightcap High-energy party bars under London Cocktail Club brand (10 sites).
- Revolution Bars Nationwide operator of premium bars: Revolution (48 sites) and Revolución de Cuba (18 sites).
- Whitbread UK’s largest operator of budget hotels (Premier Inn, over 800 sites), more than half of which with restaurants, notably as Beefeater and Brewers Fayre