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The cost of lockdown 2.0 in numbers

Published:  04 November, 2020

There’s no escaping the imminent impact of lockdown 2.0 on on-trade Christmas sales, even if we go back to the tiered system in December. 

The most profitable, time of the year is almost upon us. Yet it looks like the on-trade will be missing a major dose of profit heading into the final sprint of 2020.

As lockdown descends, we find ourselves in uncharted territory. Before Saturday’s lockdown announcement, which – at the time of writing – was increasingly likely to become a reality, expectations for Christmas were low. Vagabond Wines’ MD Stephen Finch declared Christmas “cancelled” for 2020. Operators of all shapes and sizes were grappling with the creeping threat of increasingly strict, localised restrictions.

Now, the on-trade is facing the accumulative set backs of not just one, but two national lockdowns this year, with the second threatening to all but wipe out vital Christmas sales.

“Even if businesses do open again in December as the government is currently saying they will, they are likely to be operating under severe restrictions again,” Kate Nicholls, CEO of UK Hospitality (UKH), told Harpers.

“Consumer confidence will have taken another huge hit and it could be very hard for some businesses to get back up to speed. It is difficult to see how, for instance, city centre venues are going to make a success of December. If we come out of lockdown, is it likely to be in a month where commuters are working from home and inbound tourism is non-existent. The damage is going to be felt well into the new year.”

We know the blow is going to be hard and, for many, difficult to take and remain standing. The question is, just how big will the blow be?

According to CGA, December 2019 was worth £2.89 bn to the on-trade last year. Between November and December, that’s an uplift of around 25%.

Of course, the Christmas pay-off will vary from venue to venue. One major operator says Christmas is worth 20% of annual revenue. 

But year-on-year, that November/December rise sits at a consistent 25%, which goes some way to underscore, in the words of CGA client director Paul Bolton, what a “huge period” Christmas is for UK hospitality.

November contributed a similarly major £2.29bn to bars, pubs and restaurants – a figure which now looks likely to rapidly fall towards zero. It’s a frightening prospect, and one that is increasingly casting a shadow over December, too.

Even if we emerge from lockdown under Boris Johnson’s current projections, which currently sees us returning to some form of health and liberty on 2 December, uncertainty will be the big killer this Christmas. Bookings are already way down, if not non-existent. And even if people are willing to venture out and celebrate, unknowns around tiered restrictions and a likely return to the rule of six will further curtail those profit-boosting family gatherings, festive drinks and office parties. Together, those are just too many ifs.

An added, and unwelcome, blow will be the impact to wine and spirits, which over index compared to other categories at Christmas.

According to CGA, on average, wine and Champagne saw sales rise by 39.6% during December 2019 – the highest of any drinks category. Next is spirits (34.6%), followed by LAD (Beer, Cider and RTDs), which grew by 17.9% and softs (15.9%).

“The rough equivalent four weeks of the proposed lockdown to last year (3 to 30 November 2019) made up 7.4% of total [annual] drinks value. That’s the equivalent of £2.29bn, which obviously is another blow to the on-trade after more than three months of closures already this year,” said Bolton.

Interestingly, October and November sales were almost equal last year. Halloween is – usually – a big earner for the on-trade, so much so that value sales actually dipped very slightly overall in November last year, according to CGA.

“The bleaker weather and trend towards consumers saving up for December may also be seen as reasons that November is in line with October generally,” added Bolton.

Even so, that slice of £2.29bn November trade is enormously important to the industry, and one that is likely to be wiped out this year.

We have already seen how much consumer confidence affected this year’s third quarter sales – and how government restrictions directly impact channel specific sales.

Despite August’s Eat Out to Help Out (EOHO) scheme boosting coffers and hopes for recovery, sales in hospitality dropped 48% between July to September 2020, according to UKH and CGA’s Quarterly Tracker.

“This is clearly dreadful news and made all the more desperate when combined with the expectation that Christmas will be, for many businesses, very bleak,” Nicholls said. 

Phil Tate, group CEO of CGA, added: “After sales were all but wiped out in the second quarter, a 48% fall in the third is not the recovery the sector was hoping for.”

A wiping out of November trade is what we’re heading towards again. At the time of writing, operators are gearing up for continued uncertainty. This time, that uncertainty has shades of the previous lockdown, with whispers that stricter – if not full on – lockdown measures could carry on well into the new year. Few will have forgotten that the previous lockdown was due to last only three weeks.

If there is optimism to be found, it is in the resilience of the trade itself. On Tuesday, (3 November) while party infighting over restrictions and the US election dominated the news, hotelier Robin Hutson was paying tribute to his staff.

Via Twitter, he said: “Thanks to our front office/reservations teams at the Pig Hotel and Lime Wood Hotel, who are busy rearranging 5,500 room[s] and 18,000 covers booked in November that they worked so hard to book in the first place. You are the best!”

All over the UK, employees are going beyond the call of duty to make a dystopian situation work for both companies and customers. Now it’s up to government to pay them back with clarity and a support package that will see them through.