With the upcoming blanket smoking ban in England, market analysts are looking into what effects the ban is having on neighboring Scotland to get some notion as to how a similar one would affect trade for English pubs. So far, the prognosis shows an early drop in sales beyond levels anticipated in the run-up to the ban. However, in the long term, these levels should be recovered, experts said.

The U.K. Department of Health launched a consultation paper last July, where it said there still remains a lack of international evidence to support predictions of a significant drop in sales in the hospitality industry as well as speculations that the pub sector will suffer from reduced profits. Available published evidence, however, does not support this.

SLTA survey

Recently, The Scottish Licensed Trade Association (SLTA) announced that the smoking ban implemented in Scotland last March has led to an estimated 11% drop in drink sales and 3% drop in food sales, according to a recent survey that the trade association conducted.

The survey was based on responses from 365 licensees, with 46% reporting a drop in customer numbers versus 5% noting an increase.

"The SLTA had originally forecast a 7% drop in pub sales following the smoking ban, which the association had projected would result in closures of around 3% of all Scottish pubs," Deutsche Bank analysts explained. "The survey's finding somewhat contradicts preliminary evidence provided by recent results from selected pub groups - for example, Greene King's Scottish subsidiary Belhaven last month reported a decline of only 2.2% in like-for-like sales in the year to May."

Fitch's view

In a report published in August, analysts at Fitch Ratings said that it too had received mixed feedback from operators, some stating encouraging results (particularly in food-led pubs) and others reporting slight declines in barrelage and gaming revenues but believe it is still too early to determine the full impact of the ban on the Scottish pub trade.

The Republic of Ireland, which two years ago became the first country in Europe to implement the ban, indicated that its pubs experienced a 10% reduction in trading as a result of the ban. This was combined with a general declining trade environment in the ban's first year.

The properties most likely to suffer from the smoking ban in England and Wales are those without an outdoor area or those that have not invested in making those areas suitable for trading. The percentage of properties with available outdoor facilities varies from one pub operator to the next and the levels of investment needed to prepare for the ban vary as well. Fitch believes that a decline in trade is only temporary and that, in the case of Wales and England, the longer lead-time to implementation of the ban should soften the impact on sales. The rating agency, therefore, does not foresee any ratings actions in the nearterm resulting from the ban.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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