Rekom UK has a healthier, more profitable business after the closure of 16 venues, and will focus on its party bars business going forward, chairman Peter Marks tells MCA.
The night time operator underwent a restructure that shuttered 16 lossmaking sites, but is left with 13 nightclubs and nine bars that are performing “phenomenally well”, according to Marks.
“The future looks a lot better than it would have if we had held on to the [lossmaking] sites,” he says. “It’s enormously regrettable, but the circumstances were the cost of doing business, which, with the cost of living crisis, led to a perfect storm.
“Those city centre nightclubs were very focused on students and became untenable.”
The restructure was “as simple as” defining which sites made money and which didn’t – but changes little about the group’s future strategy, which was always to open more party bars.
“Doing more clusters has been our ambition for the last 18 months, such as the one we’ve got in Cardiff,” Marks continues. “What’s changed is the speed at which we expand, which is governed by the economy, site availability, and customer confidence.
“We’re more cautious, but the vision was always to open more Proud Marys and Heidis. We had to shed the lossmakers to have a future.”
While the Rekom UK portfolio was more focused on nightclubs, the Danish parent company is “very much a party bar business” – which will be the core of the UK arm going forward.
The Heidi and Proud Mary brands are multi-occasion, multi-demographic, and have longer trading windows, which makes them more resilient, according to Marks.
Trading and profitability at these sites are both “well above” expectations, he adds.
“There are plenty of good club operators out there doing good business. I don’t see this as the death of nightclubs…for us, it was the high rents and the reliance on students.
“We’ll continue to focus on bars and doing what we’re good at, which is throwing a party.”
The issue was fundamentally property, with businesses no longer able to sustain rents in city centres by trading two nights a week.
“There needs to be that property correction in some parts of hospitality,” Marks adds. “Whilst politically, I understand the National Living Wage rise, but for hospitality, you spend £30-40 on labour for every £100 you take.
“You can’t put your prices up to cover this year’s wage increase. If politicians want to put up wages, they need to help businesses. The only answer is a VAT cut.”
Additionally, the business rates relief has helped smaller operators, but for Rekom, the saving has been 2% rather than 75%. Even for businesses saving more, labour costs are rising in tandem, he added.
“I can only claim up to the value of £110,000 on a £5m bill. Larger businesses have larger costs.”
Marks adds that Rekom is unlikely to consider opening nightclubs outside city centres.
“We’re retaining those venues because they’re good businesses. it’s just that some of the city centres are really expensive.
“When it comes to diversifying into warehouses etc, we just don’t have that expertise. There’s great live music operators out there as well but it’s just not our bag.
“We know what we’re good at, we just need to widen the demographic from students.”
Rekom will continue investing in its remaining estate and eventually return to the expansion trail through its Heidi and Proud Mary concepts, but it is too soon to define a timeline, according to Marks.
“We’re really happy with the offer, we think we’ve got it bang on right. They’re holding up even in an official recession and they’ve given us the determination that this is the direction we need to take.”
In terms of consumer insights, Marks notes weekdays are difficult but people are still coming out on weekends, but coming in later and spending less than they used to.
“Saturdays, earlier in the evening, is the highest growth area,” he says. “It’s one of the reasons the bars are doing well, because they’re open.”
While Rekom also continues to invest in its low- and no-alcohol offer, the evidence says the majority of guests are still drinking, according to Marks.
“It’s difficult to predict what will happen in the next five years. I couldn’t have predicted it ay any time in my 40-year career.
“All you have to do is make sure you’re flexible enough, and keep an eye on what the 15-year-olds are doing to get them in when they turn 18.”
The cost of doing business is “just another thing clubs have to fight through,” he adds. Younger customers may be going out less, but Marks emphasises this may not be a long-term change in habit, given that Rekom had a record year in 2021.
“There’s a myriad of things that have put us where we are, but the biggest is the cost of living crisis.”
