With the prime minister leaving most of the country in Tiers about the prospect of further lockdown restrictions, sectors of the economy, such as hospitality, will be asking what they can expect in the coming months, and whether the situation will be even worse than the first time around.
Speaking on the impact another lockdown would likely have on hospitality, Mark Lynch, Partner at consumer industries specialist, Oghma Partners, said: “The lockdown restrictions that are currently being imposed by the Government are likely to re-emphasise the earlier trends that we saw around Spring time which showed positive sales growth for direct to consumer and supermarket companies.”
“Indeed we have already seen a significant shift in consumer behaviour which has boosted growth for those companies in Q2 and to a lesser extent in Q3 but which now look to boost growth again in Q4. However on the other hand this does mean we are likely to see more long term problems for Food to Go and food service providers that are unable to service clients as per normal – the sad fact is that the longer the restrictions are imposed the more end user businesses will go bust.”
“This includes pubs, restaurants and the more food service manufacturing capacity and, to a lesser extent, Food to Go capacity we will see taken out of the market. These may be seminal changes that we are seeing.’’
It will be interesting to see to what extent these trends come to fruition, given that support for lockdown restrictions – while still favoured by most – is slowly waning, and whether more local representatives will outright refuse to impose the government’s new measures on their constituents.
For those who do abide by the government’s rules, and businesses in struggling sectors such as hospitality, the top Tier of restrictions may be even less hospitable than the first lockdown. Indeed, not only is government support for businesses far less generous than it was earlier in the year, but support for staff, and what might considered ‘viable jobs’, could leave many in difficult situations should stringent restrictions remain in place for more than a short time.
Another interesting trend to watch will be activity in Mergers and Acquisitions, with Lynch saying that: “Oghma Partners’ latest UK Food and Beverage Sector M&A report highlighted that in the months May – August of this year, there was a 59.5% decline in overall M&A deal volume but the number of distressed deals increased to 27% of the total within the sector.”
“Looking through to the rest of the year we expect this trend to continue. 2021 could see a mixed picture however, with distressed deals a continued feature of activity and in addition we may see businesses that have come to market in the final third of 2020 from owners hoping to avoid any increase in capital gains tax help improve activity levels and reverse the negative deal volume trends of the last three quarters of 2020. Overall our expectation remains that it won’t be until Q2 2021 that we will see year on year increases in M&A activity.’’