Impact of Brexit on the Hospitality Industry, Pubs and Bars Sector

alex-dumphyby Alex Dumphy, joint head of Addleshaw Goddard restaurant, bars and pubs sector

England’s premature exit from Euro 2016 certainly weakened demand across our pubs over the summer, with many operators and indeed fans, assuming that England would play more games and drink more pints.

However whilst failure in the football did have some impact on the sector, the majority of the industry will be much more concerned about the impact of the summer’s other big exit: that of the UK’s surprise vote to leave the EU – the so named “Brexit“. Whilst the new Prime Minister seems reluctant to quickly exercise Article 50 to formally trigger the UK’s exit from the EU, the impact on the hospitality industry can or is likely be seen in the following trends:

 It is entirely possible that customers are likely to be reluctant to spend discretionary income. A number of bars, restaurants and pubs are already seeing a slow down in consumer spending and will need to control their cost base and ensure their offerings remain relevant to the consumer in order to insulate themselves from these challenges. That will be particularly relevant to those outside London, as tourists attracted by the weaker post-vote pound support consumer spending in shops, restaurants and leisure in the capital;

• Many operators across the industry will be concerned about their cost base. Imports from the EU will now be more expensive due to the weaker pound – there will also be concerns on the horizon for those whose supply chains involve imports from the EU which are currently purchased free from tariffs. People will be watching to see what deal our politicians can strike. We do wonder whether there will be a move towards more “localism” – as restaurants, pubs and others in the industry seek to buy locally to achieve cost savings and remove risk from their supply chains;

• For many, Brexit will not have been envisaged at the time of signing and entering into commercial contracts with suppliers. Many supply contracts will refer to EU law and compliance and it’s unclear at present how these will be affected. It would be sensible for there to be reviews of those contracts to understand what the post brexit impact could be;

• With business travel also likely to be impacted as companies consider the impact of Brexit on their own business, hotels may be impacted, although again London may be insulated against this due to tourist’s enhanced spending power;

• Readers will of course be aware of the impact of Brexit on the freedom of movement of workers, but without going into too much detail as the sector attracts transient workers (from both within and outside of the EU) will those workers still want to work in the UK or will they seek similar opportunities in Europe’s cities? There will certainly be a notable impact on staff availability in due course;

• Finally from a transactional perspective, overseas buyers may see value in Britain’s leisure assets, indeed we anticipate interest from abroad increasing in the medium term.

Notwithstanding the above, Britain remains a real leader in leisure and hospitality and the sector has proved resilient in the past. Now the initial uncertainty over the vote has passed, the two key items that the industry will be looking at are consumer spend and what deal our politicians can strike when Britain does exit the EU.

In the meantime we and our clients will be looking at developments closely.