Nightclubs agonise over Ecstasy: Elizabeth Heathcote on the pain being felt in the leisure sector as raves entice the young from more conventional pursuits

NIGHTCLUBS have had a tougher time over the last couple of years than most other leisure businesses. Partly, this is because their young audience has been particularly affected by unemployment and the poll tax. But at least as much, clubs' share of a limited purse has been reduced by competition from other growth leisure sectors, most directly by the phenomenon of raves.

The effect is reflected in declining admissions and club closures. According to market analysts Mintel International, the number of venues has fallen by 5 per cent during the last two years, while the number of clubbers has dropped from 16.4 million to 13.9 million.

For the uninitiated, a rave is a variation of a disco that features a specific type of music played at a rigid beat to which large numbers of young people rave all night. Traditionally arranged secretly, they can take place in warehouses, fields or other unorthodox locations. It is not unusual for 10,000 to attend, each paying pounds 15 or more.

A high-street nightclub is a straightforward disco, albeit in increasingly luxurious surroundings, to which people can adjourn when the pubs shut. The formula is pop music, meeting prospective sexual partners and alcohol after hours, perhaps with a fight thrown in afterwards. A rave, on the other hand, thrives on solid dancing, drinking Lucozade, and a general atmosphere of goodwill that owes much to the drug Ecstasy.

The raves' appeal has been enormous. Mainstream nightclubs have always had to compete with particular music fads, but rave culture has stretched beyond the fringe. In some cases, clubs have simply jumped on the bandwagon, organising their own rave nights. But drugs and a quote on the stock market are a potent mix. The larger operators have avoided the risk of association and generally stick with a tried and tested formula.

Can this formula - boy meets girls, booze and dancing - survive? The next generation of clubbers has been weaned on raves; their tastes seem widely at odds with the nightclub package, and some in the business worry that it will fail to attract them. They see the competition to alcohol from Ecstasy, rather than the decor or music, as the fundamental problem.

'Youngsters can get Ecstasy for pounds 10 or pounds 12 and get a much better buzz than they can from alcohol,' said Richard Carr, chairman of Allied Leisure. 'It is a major threat to alcohol-led businesses. If we turned a blind eye to drugs, the police would be down on us like a ton of bricks and in a nightclub, we have an asset worth millions that we have to protect. But then we get known as a place that will not tolerate drugs.'

Tony Marshall, operations director of Rank's 49 clubs, is more optimistic. He has been in the business for 30 years and maintains that 'fads' have come and gone before, and that raves and Ecstasy will prove to be no more enduring. 'This is short-lived,' he said.

Still, the question is raised of whether such a fickle business is suitable territory for publicly-quoted leisure companies, particularly when the fate of some late- Eighties entrants is considered. European Leisure built a portfolio of nightclubs at the peak of the market. Since then, their value has slumped as the general property value collapse has been compounded by lower takings. Strapped with debt underpinned by depreciated asset values, European recently announced a pounds 34.6m exceptional loss on anticipated disposals.

'I see no problem fundamentally,' said Nigel Hicks, leisure analyst at Panmure Gordon. 'A lot of companies that went into nightlubs in the Eighties thinking it was an easy business in which to make a quick buck have over-stretched themselves. The key thing is being able to reinvest, and the larger leisure companies have the cash flow to do that.'

Cash flow is the operators' biggest headache. A tip-top club gobbles cash, because it has to be remodelled regularly to keep up with fashion. First Leisure, one of the most experienced disco companies, works on the basis that it may have to create a new theme for each of its 37 clubs every five years; the cost can be as high as pounds 2m each. Without cash coming in, the more strapped companies can find it impossible to move with the times, or even maintain standards.

Some have resorted to cutting door price in the hope that increased volume will bolster bar sales. Crowding is also essential for atmosphere. As a Kleinwort Benson analyst, Simon Johnson, points out: 'You cannot have a half-full club.' But as price-cutting degenerated into a price war, the situation deteriorated for every operator.

John Conlon, chief executive of First Leisure, who admits to having been forced to become 'creative with discounting' in response to competition, believes the practice is declining. 'Many have seen they cannot make money by giving away bar margin and entry revenue.'

'Cheap admissions hit the bottom line,' Nigel Hicks said. 'If the riff-raff are let in, the premium business which will spend on drink will go elsewhere.' Even if raves do prove no more than a passing fad and the finances of the young are restored, the pressure on nightclubs is likely to increase. Over the next five years, the crucial 20-24 age group will diminish by a fifth. The larger companies remain convinced that their age-old formula will stand up to the test. 'We are not at crisis point,' said Tony Marshall. 'Enough people are still attending our premises for us to say 'our product is right'.'

The future, according to Richard Carr, who monitors trends by spending weekends dancing at his own clubs, lies in entertainment. 'People want more than just an extension to the night's drinking,' he said. 'Nightclubs have to change and become more like theatres.'

For Allied Leisure this means a return to roots and the sort of wet T-shirt marketing gimmicks that other companies have spent years trying to live down. 'It is coming back because it is fun,' Mr Carr said. The concept has been refined for the decade of political correctness; hence the introduction of a 'Mr Himbo' competition, to find the male version of the bimbo caricature, as well as the self- explanatory 'Mr Rear of the Year'.

(Photograph omitted)