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News - 29 June 2008

Smoking ban’s first birthday

The ban on smoking in public places is one year old on Tuesday (1st July). One year ago no one knew that the ban was being introduced immediately prior to the downturn in the economy which was bound to magnify its effect on the pub trade.

The current economic downturn and the sharp rise in food prices were not predicted by many and, together with a glut of cheap supermarket alcohol encouraging people to do their drinking at home, this has led to a shake out In the pubs and clubs sector which isn’t over yet.

As the first anniversary of the smoking ban approaches, pub operators are staring at declining share prices, wrecked business models and a lengthening trail of pub closures.

According to the British Beer and Pub Association, pub closures are now running at a net rate of 27 a week. They report that 1,409 pubs closed in 2007, which is an increase from 216 closures in 2006 and just 102 in 2005. And professional services firm PwC are predicting that a further 2000 pubs could cease trading this year and 6,000 over the next five years.

According to chief executive of the BBPA - Rob Haywood - “The industry is in a crisis.”

Among the worst hit are small independent operators with a single pub and late-night high-street bars such as Laurel Pub Company (operators of The Slug & Lettuce, Ha Ha and Yates bars) and a string of others. The six biggest listed operators have lost 64 per cent of their combined market capitalisation in the past year.

Analysts have also raised concerns about Punch Taverns’ banking covenants. Punch says it is confident of meeting full-year expectations but its shares fell by 43 per cent in June on debt concerns.

Companies such as Marston’s (operators of Pitcher & Piano bars) and Mitchells & Butlers (operators of O’Neills and All Bar One) have responded to the smoking ban by focusing on food and coffee sales but unanticipated food inflation is squeezing margins.

One of the unexpected impacts of the smoking ban is the way that hardened smokers have simply moved outside to occupy the spaces in front of pubs on a more or less permanent basis. When the weather is good there are often more people outside than inside and this has led to complaints where pubs are located in residential neighbourhoods.

ECONOMIC PARTNERSHIP COMMENT

This summer will be a key test for the pub trade especially in Brighton & Hove with over 1000 licensed premises all competing for market share at a time when disposable income is at a record low.

The city is perhaps better off than many because it still attracts millions of visitors and has a lively programme of events that make it an attractive destination but there is little doubt that, just like retail, the pub and club trade is in for a hard time.


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