Lockdown winners and losers

WINNER – Bike Shops

The list of things you were actually encouraged to do in the lockdown was a very short one. But, if you were tired of staying at home staring at the four walls of your living room, then cycling was highly recommended as a great way to stay fit and stay sane during the pandemic. It was also a great, eco-friendly way for essential workers to commute to their jobs when public transport was either unsafe or just not running. This meant that bike shops were considered essential retailers and allowed to stay open throughout 2020.

Unsurprisingly, all this led to a huge boom in sales, and 2020 was even christened the “year of the bike” by many in the media.

Research by GlobalData indicated that 1.3 million Brits bought a bike in lockdown, while data from The Bicycle Association showed that sales grew by 60% from March to October 2020, and the UK cycling market was expected to be worth £2.2bn by the end of 2020.

For the moment at least, it seems like the only thing slowing down sales is supply shortages, with the huge jump in worldwide bike demand leaving suppliers struggling to ensure steady flows in this exceptionally challenging year for all businesses.

Quoted in The Guardian, Will Butler-Adams, the Managing Director of British folding bicycle maker Brompton Bicycles, said he was “extraordinarily confident” that the company would not be able to keep up with global demand in 2021. He added that Brompton sales were up 22% in 2020, but could have doubled with a fully functioning supply line, concluding that “we are not giving anybody enough bikes”.

These issues have been exacerbated by a shortage of shipping containers, as well as delays at British ports due to Brexit.

The real success story though was e-bikes. Here at startups.co.uk, we’ve been fans of e-bikes for a while – we picked ebike conversion firm Swytch Technology as no. 25 on our 2020 Startups 100 and e-bikes/e-scooters was one of our top business ideas for 2021.

And 2020 was the year the country woke up to ebikes’ potential, with The Bicycle Association finding that e-bike sales more than doubled from March to October 2020, and that one pound in every five spent on bicycles during the pandemic was spent on e-bikes. Halfords produced even more startling figures – stating in September 2020 that sales of e-bikes and e-scooters were up 230% year-on-year.

With the pandemic expected to continue to significantly affect peoples’ behaviour for at least a significant part of 2021, prospects for both e-bikes and the overall UK cycling market are excellent, especially as the spring and summer are bound to tempt even more people onto two wheels.

However, even once this remarkable growth subsides, this sector has strong long-term potential. The UK government is committed to investing millions into creating new cycle lanes and improving cycling infrastructure, recognising that getting people out of their cars and onto bikes is a great way to reduce the country’s environmental impact and help tackle climate change.

LOSER – Pubs and Bars

The word “challenging” doesn’t quite do justice to quite how tough 2020 was for pub and bar owners. Places that were once the hubs of their communities or the go-to destination for post-work pints were forced to close for much of the year due to the heightened risk of spreading Covid-19. Even when they were open, many struggled to attract consumers worried about the risks, and the after work drinking crowd practically disappeared.

This led to some stark statistics – according to the British Beer and Pub association, beer sales in pubs fell by 56% in 2020 (compared to 2019), a loss of £7.8bn. On a quarterly basis, some of the falls are even bigger – with sales plunging by 96% in Q2 2020 (which included the first national lockdown) and dropping by 77% in Q4 2020.

It’s no wonder that Nick Mackenzie, CEO at sector heavyweight Greene King described 2020 as a “write-off for pubs”.

Unsurprisingly, even with the financial support offered by the government, some establishments simply couldn’t survive. Research by industry analysts CGA and AlixPartners showed that Great Britain (excluding Northern Ireland) lost almost 6,000 licensed premises in 2020, with casual dining venues and community pubs the hardest hit. Urban areas lost more venues than rural locations, with Birmingham losing 8.5% of licensed premises, Leeds 5.6%, and London and Glasgow both recording falls of 4.5%. The research also found that the problem wasn’t so much more premises closing (there were 9,930 closures in 2020 compared with 8,658 in 2019), but that these closures weren’t replaced by new openings or existing operators taking over those premises. It clearly wasn’t a business sector many wanted to enter for the first time, and existing businesses were focussed on survival rather than expansion.

Many in the trade did survive though, including two small creative and resourceful small business owners who share their stories below. Both highlight how the exceptionally difficult trading conditions challenged them like never before, and explain how they took advantage of the available support, and quickly adapted to meet the demands and needs of a radically different marketplace.

“This year has presented a lot of challenges. It’s almost as though everything you thought you knew about running your business went out of the window and had to be rethought.

“That’s not to say it was all negative. August was a phenomenal month for us, which Eat Out to Help Out undoubtedly played a part in. So much so, that we were almost able to generate as much profit in August as we would normally have done in the full quarter.

“Indeed, we’ve found a way to make a lot of the restrictions work in our favour. (I personally, was a huge fan of the closed by 10pm rule.) By operating with decreased capacity both in terms of table space and kitchen output due to distancing of kitchen staff, we were forced to place stricter controls on our table management system which surprisingly meant that we were running more profitably in October then we were pre-COVID.

“The second and third lockdowns have been tougher to negotiate. With cash reserves almost depleted from the first lockdown and the government grant payments barely covering my monthly electricity bill, we have been forced to use the government’s £50,000 bounce back loan to cover our overheads.

“We have also done occasional takeaways, but those have been more about serving the local community and doing the job we love rather than a bill paying exercise. Still, the key for us was to stay flexible and optimistic.

“It would have been so easy to get bogged down in the gloom and despair of the situation but we have sought at every point to find a way to make this work for us.

“For example, we weren’t able to provide Christmas Day lunch at the pub this year, so we put together a hamper with everything needed and a detailed timing plan for people to cook at home instead. This was so successful that we are planning to repeat it next year regardless of restrictions.

“We have also had some time to be innovative and work on a new business venture, Little Weighton Kitchen (LWK), that we plan to continue running after the world re-opens. LWK is a sustainable recipe box service and utilises the very best Yorkshire food producers and suppliers to enable our customers to cook imaginative, chef-created recipes at home.”

“The initial lockdown announcement was just about the worst news I’ve heard in my life!

“But we pivoted our business within a week to launch a cocktail home delivery service for freshly made cocktails from our bar delivered locally. We sold 40,000 cocktails between March 2020 and July 2020 and this was the catalyst for us winning a Great British Pub Award 2020 for the biggest category for Business Continuity. It came with a £10,000 prize win, which was amazing and meant we could invest in our outdoor area.

“We have opened and closed, opened and closed, but the cocktail home delivery service has been going strong throughout and has given us a great deal of financial protection. We applied for a business grant through the Dorset Growth Hub and they gave us £3,000 which meant we could develop our website and create a really strong ordering platform.

“We didn’t stop at the local cocktail delivery service. We created and developed a range of Cocktail kits that are designed with a longer shelf life and for recipients to make and drink at home. We post these nationally and they have been really successful since we launched them in December 2020 and we have sold thousands. Each kit has a video tutorial which accompanies it so the cocktail making experience is immersive and unique. We have been really lucky with corporate orders for our kits and have created bespoke cocktail kits for Disney twice and also ITV and some other corporate clients.

“We are definitely a success story of Covid. We are currently preparing to reopen our outside area in April and then inside again in May but we are continuing with the online and retail side of our business which has opened up a huge opportunity for us.

“We took a bounceback loan right at the beginning to be on the safe side but haven’t had to dip into it. We have had some rent relief but we have definitely invested in the growth areas.

For example, we were previously mainly a hectic cocktail bar with lots of cocktails and dancing, but the new regulations required guests to be seated. So, we invested £30,000 in renovating our basement, and we created an additional bar with seating for 50 people. The cocktail delivery and online retail definitely paid for that investment outright.

“We also invested an additional £10,000 (alongside our £10,000 winnings) on improving our outside area, so it is completely undercover if needed – and that was paid for by our continued trading.

“We’ve also invested significant amounts in the development of our cocktail kits (in areas like online branding and packaging) but that was paid for by the sales of the kits.

“Overall, there has been a lot of speculating to accumulate, and really jumping on an idea in order to grow that area of the business. We have had to be very reactive as a small business, be really active on social media, and take some risks, but it’s definitely paid off massively.”

Unfortunately, the overall sector continues to face an uncertain future. With any full reopening still several months away, and the everpresent threat of new coronavirus variants entering the country, it’s hard to know when the nation’s pubs and bars will be full and making money once again.

WINNER – Pet Shops

For many people, one of the key challenges of lockdown has been loneliness. The loss of social contact fundamentally changed the way many people live, and had a significant negative impact on mental health.

In this context, it’s hardly surprising that pet ownership surged during lockdown, with people across the nation deciding that they needed a little furry companion to give them some love and affection. With many also working from home, they also had more time to take care of their new arrival.

Overall, a survey from the Pet Food Manufacturers’ Association found that 3.2 million UK households acquired a pet in lockdown, bringing the country’s total number of pet-owning homes to 17 million. Under 35s accounted for 59% of these new pet owners, and 74% of this group said their new pet had helped their mental health.

Cats and dogs are still the preferred choice of pet for most people, with the survey finding that, of the UK’s 34 million pets, there are 12 million cats and 12 million dogs.

This boom was great news for the UK pet industry. Sector goliath Pets at Home recorded a 5.1% increase in total sales and a 14.6% growth in pre-tax profit between February and October 2020.

And smaller stores also enjoyed strong sales, with PetShop.co.uk co-founder and CEO Adam Taylor saying that “we went from packing and shipping 1,000 orders a day to 4,000 orders a day”. There was also a “300% increase in sales after the first national lockdown” and “our ‘Bottomless Bowl’ auto-delivery service saw a huge increase in demand”. This service is unique to PetShop.co.uk and “allows pet parents to choose the food they like and then set the delivery frequency, so they never need to worry about buying or carrying heavy pet food again”.

It was a similar story for Elizabeth Chislett-Milne, the owner of Grovely Pets, which sells pet supplies across three stores in Hampshire and online:

“We opened a brand-new store a year ago, just before the pandemic, which was a bum-squeaking moment! However, once lockdown hit, the world went mad and just cleared our stores out. We had massive footfall coming into the store and just clearing the shelves — we couldn’t get it in quick enough.

“All three of our stores have grown, and that’s because we’re different and the things we stock are different, but also because the community is very much in the mind of trying to keep us alive rather than the big boys.”

Sales of pet food also rose substantially, which was great news for pet food manufacturers. Reflecting on how his business has fared over the past year, Mark Scott, the co-founder of raw pet food brand Bella & Duke commented:

“Given the boom in pet ownership over the past year, we’ve seen a huge increase in demand for raw pet food and our business is now on track to achieve double the amount of sales we made in the previous year.

“Thanks to our growth in the last year, we are now currently serving half a million meals to UK pets each week, and have the opportunity to double this with the launch of our new state-of-the-art factory.

“As a personalised service that offers premium, healthy nutrition unique to their pet, delivered straight to the customers front door, we’ve found that the demand has been even higher due to lockdown.”

What this sudden surge in pet ownership means for the longer-term prospects of the industry is unclear. Charities like the RSPCA are already concerned that lockdown pets will be given up once restrictions are lifted and owners find it difficult to balance pet care and more conventional working patterns. On the other hand, companies across the country have indicated that a return to the standard five-day 9-5 in-office week is unlikely, so perhaps at least some of these new pet owners will be able to continue to care for their companions even when life is back to normal.

LOSER – The West Midlands

In the words of one Birmingham MP,  “Covid has hit West Midlands jobs harder than anywhere else”.

And the stats back him up – Birmingham has one of the UK’s highest unemployment rates, and contains five of the 10 constituencies with the highest rate of people claiming unemployment benefits.

West Midlands Mayor Andy Street recently confirmed the region’s economy lost £11.5bn in the last 12 months. This led to 100,000 job losses – as many as were created in the previous three years – and means times are tough for the region’s small businesses.

The CBER research discussed at the start of this article also identified the West Midlands (along with the East Midlands and East of England) as one of the regions where “Covid-induced losses were larger than expected given their typical contribution to the economy”.

And, as we noted in the pubs and bars section, Birmingham lost 8.5% of its licensed venues in 2020 (the highest proportion in the country), making it clear that Covid-19 has had a devastating impact on the region’s hospitality industry.

There are multiple reasons why Covid-19 hit the West Midlands quite so hard. One key factor is that the region was subject to some of the country’s most stringent restrictions, with a local lockdown imposed in autumn 2020 due to its high rates of transmission.

The composition of the local economy also played a crucial role. Key industries include hospitality, retail, transport and manufacturing, all of which really suffered during lockdown and led to businesses (including SMEs) having to either furlough or lay off staff.

Even before lockdown, Birmingham’s economy had one of the UK’s highest proportions of temporary workers (including significant numbers on zero hours contracts), meaning high levels of job insecurity and making it far easier for employers to simply fire people if business slumps.

All this has meant that people across the region are being extremely careful with their spending even when they are allowed to go out, producing exceptionally difficult times for the region’s small businesses.

Quoted in The Guardian, Zafar Hussain, owner of Shababs restaurant in the heart of Birmingham’s famed ‘Balti triangle’ said this has been “really, really tough”. The restaurant has been in his family for 33 years and survived previous recessions, but has had to furlough staff and is only making “some income” by operating as a takeaway.

The same piece also quoted Ulmat Begum, who was helping out on her husband’s fruit and veg stall at the Bullring open market. Trade on the stall is down 60% and, because they have to keep buying despite sales being down, the Begums are now in debt to their wholesaler.

It’s two stories that give an idea of how the region has suffered from lockdown, and that back up the overall statistics.

Unfortunately, it’s hard to know just how long it will take for the region to recover from this massive economic blow. West Midlands Mayor Andy Street is currently campaigning for re-election and has talked up how the region could benefit from HS2 and Birmingham’s hosting of the 2022 Commonwealth Games, but the city’s sprawling John Lewis department store has been permanently closed by the retailer.

Covid transmission rates will have to fall significantly before the region’s key industries can return to normal, and the overall future of high street retail is under severe threat from the rapidly increasing popularity of online shopping and companies being more open to remote working than ever before.

For the West Midlands to properly rebound post lockdown, the government’s talk of levelling up has to be more than just mere rhetoric.

WINNER – UK Video Games Industry

Playtime soared during the pandemic, as people spent more time at home and used video games to virtually connect with friends and family.

Video game developers also had a relatively straightforward transition to remote working, with data from industry body Ukie’s (UK Interactive Entertainment) Playing On report showing that game businesses continued to work at 80% productivity during the worst of the Covid-19 crisis, and nearly a quarter continuing to recruit as the crisis unfolded.

This, coupled with the launch of new consoles at the end of 2020 (the PlayStation 5 and Xbox Series X/S), meant a bumper year for the UK video games industry. Overall, Ukie research found that the UK games market was worth a record £7bn in 2020, an increase of nearly 30% from 2019. This was driven by big increase in both hardware (games consoles, accessories, and upgraded PC gaming components) and software (physical and digital video games) sales:

• Hardware sales rose by 61% to a record £2.26bn
• Software sales increased by 18% to £4.55bn

Game culture revenues (which refers to things like game-related toys, merchandising and books/magazines) also rose to £199m, although this masked declines in movies/soundtracks and books/magazines, as well as an understandable 97% plunge in gaming events and venues revenue.

Discussing how the industry has fared over the last 12 months with startups.co.uk, Ukie CEO Dr Jo Twist OBE explained that, while games businesses continued to make money during the pandemic, funding remains a significant concern, and more government support could really help take the industry to the next level:

“Generally, games businesses have proven resilient in response to the crisis. In July 2020, 49% of companies we surveyed for our Playing On Report said that their revenues had slightly or significantly increased during the lockdown period.

“However, small businesses also reported concerns about access to finance – especially those who did not have a game in the market to benefit from the boom. With physical trade events drying up due to Covid restrictions and concerns about the overall picture of the economy front of mind, 56% of companies reported concerns about securing investment as the year progressed.

“The industry in the UK has acted to alleviate concerns. Ukie, along with Creative England, launched an accelerator programme to help support growing small businesses across the UK. The London Games Festival’s Games Finance Market has also helped dozens of smaller British games businesses meet with investors bearing £590m of financial support.

“But we believe that careful targeted support from the Government could help turbocharge the growth of games SMEs even further. The UK Games Fund, which has delivered win after win to the UK economy with only a million pounds worth of prototype funding each year, could easily help small businesses overcome concerns with just a small increase in funding to £25m over three years.”

Some video game SMEs really benefited from lockdown, including one that was launched in the middle of the pandemic. In May 2020, Tom Fairey and Rockstar Games co-founder Gary Foreman teamed up to launch Stakester, a platform that lets gamers compete online for cash and prizes. Since then, the company has enjoyed massive growth, with Tom noting that “since the start of lockdown, we’ve seen a 3,000% increase in active users”. This meant that the fledgling company was “able to scale much faster than we had anticipated”, including going from an initial eight to 24 employees during 2020.”

Other games businesses were able to take advantage of the global shifts in behaviour that were triggered by other countries imposing similar lockdown restrictions. For example, Paul Sulyok, the CEO and founder of global games retailer and publisher Green Man Gaming, found that while the company’s proprietary data showed that overall playtime soared by 83% to 1,665 hours (an average of 4.5 hours per day), this growth wasn’t being primarily being driven by UK gamers. Instead, “what the pandemic did for us was really turbocharge our growth in non-core markets”, with revenues increasing by 67.9% in Saudi Arabia, 39.9% in Turkey, and 35.4% in France.

And there’s every reason to expect the industry to keep growing in 2021 and beyond. The new consoles that were released at the end of 2020 are still facing supply issues and continue to sell out in seconds, meaning a large pent up demand that hasn’t yet been satisfied. And, beyond this, video games have strong prospects – driven by a new generation of affluent consumers that grew up with video games and see them as a key part of their lifestyle. Any prolonged shift to more remote working would only exacerbate this trend.

LOSER – UK Tourism

For any UK business that relies on tourism, 2020 was a very tough year. Countries across the world imposed restrictions on travel that reduced the steady flow of foreign tourists arriving in the UK to a trickle, and domestic tourism was also massively cut down by internal travel restrictions imposed by the UK government.

The stats are striking, with VisitBritain’s tourism forecast estimating that:

• Total visits to Britain will be down by 76% from 2019, to 9.7m
• Total inbound (i.e. international) spending will be down by 80%, to £5.7bn
• Total domestic tourism spending will be down by 62%, to £34.4bn

Taken together, this represents a hugely significant blow to an industry that had previously been growing rapidly, and one that it may take years to recover from.

This was underlined by a recent PwC report on the future of the UK hotel industry, which suggested that UK hotel occupancy rates could take four years to return to pre-Covid levels.

Many businesses in this sector have only survived by relying on financial support from the government, and those that have stayed open have had to contend with the extra costs of cleaning and sterilisation. This can be significant, with hotel operations platform Optii solutions suggesting they could cost a 250-bed hotel £100,000 a year.

For many businesses, it was hard to know whether it was worth staying open at all (or reopening in the case of seasonal businesses) given the restrictions in place. In an article on the ICAEW website examining the post-lockdown future of UK tourism, Cumbria Tourism Managing Director Gill Haigh noted that, by the end May 2020, the pandemic had cost the county £1.45bn in lost tourism spending, nearly half of the 2019 total. At the time, the county’s tourism businesses were looking forward to either fully or partially reopening in July, but at an average capacity of only 60%.

This dramatic fall in visitors left some of the UK’s tourist hotspots virtually deserted. In a Guardian piece examining the impact of the tourism crisis on Edinburgh and Bath from July 2020, one restaurant owner described the famous Scottish city as “a ghost town” and Paul Nixon, who runs the Real Mary King’s Close historical experience, was running 14 tours a day instead of his normal 54. In Bath, the lost tourist income has made the council determined to pivot the local economy away from mass tourism to focus on tech businesses and high streets that meet the needs of local residents.

Provided transmission rates continue to slow and the government can stick to its plan for easing lockdown measures, things are expected to improve in 2021, VisitBritain is now forecasting inbound tourism spending to climb to £6.6bn for example, a 16% improvement from 2020 but still only 23% of the 2019 total.

However, there seems little doubt that Covid-19 will continue to impact the industry for multiple years, and that businesses reliant on tourism should be considering how they can diversify and serve local audiences in order to secure their long-term futures.