IT was interesting to observe the stock market reaction to the full-year results of Mitchells & Butlers, the UK pubs giant that owns Glasgow’s popular Horseshoe Bar, last week.

Shares in the company, which has a portfolio of around 1,700 outlets including many trading as O’Neill’s, All Bar One and Toby Carvery, leapt by 6 per cent as it hailed an “encouraging” recovery in sales in the 52 weeks to September 24, adding that the picture had continued to remain favourable since year-end.

The company, which also made a return to profit last year, emphasised that the trading environment continued to be highly challenging, as rampant inflation puts pressure on margins. But, highlighting the return to office working, the recovery of city centres, and people becoming more confident about returning to the hospitality sector, M&Bs declared: “This makes us cautiously optimistic about the future.”

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The statement from M&Bs came a day after fellow pubs heavyweight Marston’s delivered an update that was similar in tone.

Marston’s, which has around 1,500 pubs in the UK, also reported a return to profit, and said trading had been positive in recent weeks (helped by football fans watching England’s games in the World Cup). Chief executive Andrew Andrea said the company was looking forward to the “first restriction-free period in three years”.

Marston’s also acknowledged the wider economic uncertainty, but declared the business was “well-placed” to meet the challenges.

Given the worrying state of the economy, the statements from M&Bs and Marston’s were striking in their positivity. But is their optimism being felt widely across the hospitality industry? In a word, no. While we may look around and see pubs, bars, hotels and restaurants thronged with people as the festive season gets into full swing, it does not automatically follow that profits are flowing as bountifully as the beer and wine.

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That the hospitality trade is able to operate restriction-free at Christmas for the first time in three years is enormously welcome – for consumers, staff and business owners. It should never be forgotten just how worrying the years blighted by Covid have been.

However, the industry entered the festive period this year in the depths of a protracted cost-of-doing business crisis so severe that survival will be a good result for many operators, let alone making a profit. The pressure was underlined by the latest Bank of Scotland UK Sector Tracker, published yesterday, which showed that hospitality and tourism businesses had seen the fastest operating cost rises of any UK sector in November. The sector, spanning pubs, hotels, and restaurants, faced higher inflationary pressures than the other 13 sectors surveyed.

Against this backdrop, it is not surprising that many hospitality businesses, notably in rural areas, have already taken the decision to hibernate for the winter, with the hope of reopening in spring when the inflation outlook may not look as grim. Others have been operating at reduced capacity.

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The big guns of the hospitality world, such as M&Bs and Marston’s, operate at such a huge scale that they are able to negotiate savings when buying food and drink from suppliers. They will also perhaps have hedging arrangements in place to cushion the impact of the massive rise in energy costs we have seen this year following Russia’s invasion of Ukraine.

But the thousands of independent and small-to-medium sized businesses that make up the backbone of the industry in Scotland cannot rely on economies of scale.

Leon Thompson, executive director of UKHospitality Scotland, told The Herald: “In any year a successful and busy Christmas is vital for hospitality businesses looking to make enough money to help see them through the leaner months of January and February. This year is even more critical, with businesses working hard to capitalise on custom as people enjoy their first festive period in three years free of Covid restrictions.

“However, even where businesses are reporting good trade, the current cost of doing business means few are making profit. Despite the headline rate of inflation dropping slightly, it remains the case that hospitality businesses are seeing intense inflation in every aspect of their operations. In particular, energy and food and drink costs continue to rise.”

The Scottish Licensed Trade Association offered a similar view, declaring that the festive period is “certainly not the bumper season operators were not only hoping for – but needed – to carry them through the first quarter of 2023”.

Managing director Colin Wilkinson told The Herald: “In some instances, we are hearing of the festive trade being down by around 30%.

“More reports are coming in of cancellations because of transport issues, particularly the train strikes, but also because of late-night public transport and taxis. These cancellations are not only for nights out – we are also seeing increases in cancellations for short-stay vacations and family gatherings because of rail travel concerns.”

He added: “In general, while footfall in some places might be good, spend is down and length of time staying out reduced, hitting the late-night industry in particular. There are some patches of more positive trade, but few and far between. We are also hearing of a decrease in larger party groups and office nights out, but a slight increase is smaller party groups and family groups.”

Following the challenges of the last three years, it is certainly heartening to see pubs busy again, and the hospitality trade traditionally comes into its own at this time of year. It is certainly one of life’s great pleasures to catch up with old friends in one of Scotland’s many welcoming hostelries at the festive period.

But it will not be long before the long, dark days of January hove into view, when it will be a lot more difficult to navigate the ongoing cost inflation and significantly fewer people will be coming through the doors.

In anticipation of those challenges, the hospitality industry has this week made a fresh plea for Government support, as fears grow that the post-Christmas trading period will bring further business failures.

And front and centre of its lobbying push has been a call for the Scottish Government to freeze the business rate – a pence in the pound tax rate multiplied by a commercial property’s rateable value to calculate how much it pays in business rates – as part of the Scottish Budget that is due to be announced today. The business rate has been frozen in England and Wales.

The Scottish Beer and Pub Association, Scottish Licensed Trade Association and UKHospitality Scotland said in a joint statement: “The hospitality industry is vital to the economy of Scotland, to local high streets and communities, but the current economic downturn and a range of other unprecedented challenges will see many unfortunately fail without meaningful intervention on business rates.

“Not only must the Cabinet Secretary (John Swinney) commit to matching a freeze on the UBR (uniform business rate) in Scotland, but he must also match the support for the sector in England and Wales, where a 75% rates relief package will be in place. The sector desperately needs this to survive, to continue to provide employment for staff and remain competitive with our neighbours.”

If Mr Swinney is thinking of giving the trade a gift this Christmas, a freeze in the business rate would certainly amount to more than a stocking filler.