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Living with lockdown – Enotria & Coe

Published:  24 April, 2020

Troy Christensen, CEO at Enotria & Coe, talks frankly with Andrew Catchpole about the impact of the current crisis on on-trade suppliers and the daunting challenges ahead for the hospitality sector.

What was the initial impact like when the on-trade was shut down?

When Boris originally announced ‘don't go out and drink’ there was already a pretty dramatic drop off and around 90% of our business was on-trade. We have a retail shop with a web front, and we actually had a strategy to build that out more. But unfortunately we weren't quite prepared for the onslaught. The digital sales went crazy, but at the same time everybody is using the same parcel delivery services, they just got absolutely overloaded, so we had frustrated customers. And the supply chain wasn’t ready for such a shift of channels that quickly.

We kept our off-trade on, we have the support mechanism for our digital platform, but again in comparison to where we were before it's 10% of our total business. We were 24-7 in the warehouse, but we had to dramatically reduce the warehouse staff and we’re working with a skeleton crew in the office, having furloughed a lot of people.

Then we worked with customers, had conversations with them, trying to do more than having them just saying ‘hey, I’m shut down, when I open I’ll give you a call’. And we did the same thing with suppliers, trying to find ways to shift what we sell, but it’s difficult with everyone doing the same thing.

How helpful have the various government support measures been?

I recognise the government was responding to a very difficult set of circumstances but there a couple of things that negatively impacted on my particular part of the channel. The UK hospitality sector did a very good job of coming out and saying you’ve got to give our guys some relief, and they did. But the way they framed that for hospitality was for the bars, pubs and restaurants. Well okay, but we're the ones that ship into them. We are the ones that actually cut the tax to HMRC, so when I shipped to them I ended up paying HMRC the tax, which is about equivalent to the cost of the product. Then [customers] pay that back to me when they pay my bill, but a substantial portion of those companies haven't paid the bill, and in some instances they have returned stock, so we are the part or the channel that has been negatively impacted.

[For example] I had a number of customers that were in the horse racing industry. So you've already shipped out to them, all the product, it's sitting there, the horse racing gets cancelled, and then they ship it back to you. I haven't sold anything, I just have a bunch of costs to deliver and pick back up. Then the government wants me to pay the tax on that, so that means under bond tax paid. And that, unfortunately, is part of the issue. The government wants its money, but nobody's paying you.

When the government looks after ‘hospitality’ they're not recognising the people that supply those businesses, but particularly the beverage alcohol side - wine and spirits have such low margins but have gigantic cash requirements on a tax. I'm just a tax collection vehicle for the government, more or less.

Is government listening to the trade’s concerns?

The Wine & Spirit Trade Association (WSTA) is in a difficult place because it has a broad base of off-trade providers, which are obviously doing quite well, but it’s hurting the on-trade guys. So, ideally, you would say if it’s an off-trade business you’ve got to pay the tax, but if it’s on-trade, we’ll defer the tax.

The WSTA has talked about the flexibility of the government and I think the government is trying to help, but it's been difficult ultimately, in some of its policy positions - it's difficult to have a common policy that's going to extend everywhere, across every industry. And it's also difficult to try to prevent people taking advantage of it, and with furloughing, without having unintended consequences. There are some people that will try to take advantage of the government scheme.

As a business how easy has it been to thread your way through the details of the relief schemes?

With the job retention scheme,  furloughing and other relief, it’s too early to comment on how all that's working, apart from the fact that obviously government's got to bail people out and they've got to cope with this massive problem. But then every time you look at something else an angle comes out that you hadn’t thought of and there's another hole which needs plugging.

When Boris went out there and said, ‘Okay, I'm shutting down 90% of your business’, and then the same day the Chancellor said ‘hey, I'm going give you some sort of coronavirus employee retention’, they didn’t give the details.

It does feel like there was a lot of big numbers and big ideas but the implementation of them has been pretty poor. It’s the same thing with the loan scheme here versus elsewhere in Europe because the government basically set it up so banks have to take a 20% risk, on earning 1.5% of interest, and banks are going to be wary of doing that. And if you're going to ask them then to go through the normal credit process that's going to take 30 to 45 days with everyone that's applying. And then no one's getting [relief] and so that's tremendously embarrassing. It also said that there's a mid-level scheme and a large scheme, but no details of those have been passed on.

The deferment of rates has been fairly helpful but everyone in the wholesale environment has got big warehouses and offices, and they're shut down. So maybe you can ask your landlord to defer rent, but you're still losing money for two to three months because you're not operating and there are some fixed costs that you have in the business.

What do you predict the longer-term impact will on the on-trade?

When you turn [the on-trade] back on everyone's going to expect to get paid, but the demand is not there – it’ll be maybe 50% down for a while, with the expectation there's going to be some social distancing requirements - how many restaurants in the country, or London in particular, can be profitable with half their customers taken away?

These are low margin businesses and if they are operating greater social distancing, you have fewer people, fewer covers. How many customers can you afford to lose and if you are forced to have even 10% fewer customers, let alone 20% or 50%, I can't see how most of those businesses will be able to operate at any kind of profit with the costs that they bear. And I think a lot of people will be too frightened to go out and eat right away, because the government's done a pretty good job of scaring the crap out of them for the last few months, though for the right reasons. And we’ll be in a recessionary environment, people are not going to be spending at the high end. And I think all of that combines into a very difficult scenario.

There are some that are doing well, there are some groups out there doing big money each a week delivering food, that have successfully converted to takeout, but they are not selling much alcohol. And part of our business is supplying a lot of the sporting venues and I don't think that's going to come back for a while – the government won’t have the appetite for opening those for a while.

Is there any positive change at the moment?

With home consumption, I think you’ll see that the wine category will have grown a bit (and you can see it in the States), when it had been shrinking. There’s a lot of [on-trade] people doing quality pre-mixed cocktails and delivering, but that’s actually quite small [in volume terms] and home consumption is more on a comfortable level - wine meets that better.