Independent Pubs Face 'Devastating' Energy Cost Spikes

Independent pubs could be left vulnerable to spikes in energy costs caused by the Iran war, while their larger competitors enjoy the security of fixed energy deals. 

Landlords across the UK could face “devastating” costs if energy prices continue to rise, trade body UKHospitality has warned.

Blockages to the Strait of Hormuz, a crucial shipping channel, have caused oil and gas prices to surge and some businesses have said they may face higher energy costs as soon as April, when they renew their contracts with suppliers.

The owner of pub chain JD Wetherspoon has warned this disruption will push up the price of beer, with The Telegraph reporting that the spike in energy prices will cost UK pubs £169m per year.

The UK’s large hospitality operators, like JD Wetherspoon and Domino’s Pizza, have hedged their energy prices – meaning their bills remain fixed for the long duration of their contracts and they are less likely to have to pass extra costs onto punters.

Some, like pub operators Young’s and Fuller, Smith and Turner, will enjoy fixed energy prices until next year, according to analysts at Peel Hunt. 

But others, like JD Wetherspoon, have hedged energy contracts which run until 2029, meaning they are likely insulated from all potential knock-on effects of the current war in the Middle East. 

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The value of energy hedging was made clear during the energy crisis in 2022 caused by Russia’s invasion of Ukraine, which caused hundreds of pubs to go under. 

“A couple of operators didn’t do much hedging before the Ukraine War, but since 2022/3 they have joined the others in maintaining a level of certainty in their energy cost planning,” Douglas Jack, leisure analyst at Peel Hunt, told City AM.

Peel Hunt said hospitality firms have been reducing their energy usage for many years, with some installing solar panels and switching usage from gas to electricity.

Hollywood Bowl has invested heavily in renewable energy in recent years, with the firm having installed solar panels at more than 40 per cent of its locations and generated 12 per cent of its electricity from onsite renewables last year.

Pub chain Fuller’s has also rolled out electric cooking equipment at a number of its sites to reduce its reliance on gas, and plans to produce net zero operational emissions by 2030.

Small pubs could be ‘devastated’

But small or independent hospitality firms are unlikely to have set in place long-term fixed energy contracts because of the administrative complexity and cost of doing so. 

Jack said: “This is one of the many factors that are creating polarisation within the sector, because small companies might struggle to do all of this to the same extent that the big companies are.”

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Kate Nicholls, chair of UKHospitality, told City AM that hospitality firms coming to the end of their energy contracts are already seeing prices spike as a result of the war in Iran.

She said: “Many rural hospitality and tourism businesses are off grid and will be particularly exposed to the significant hikes to heating oil prices.”

Businesses which use oil to heat their buildings are particularly exposed to events in the Middle East because the price of kerosene has risen even quicker than petrol and gas.

On Monday, the government announced a £50m support package for households who heat their homes using oil.

Nicholls said she has asked Labour prepare support for firms: “We have written to the Government to warn of the potentially devastating impacts to the sector should these price hikes continue and intensify, and urged it to prepare measures to support businesses.”