Pubs making do and mending amid rising cost headwinds

Comment Martin Flanagan

Mitchells & Butlers has kicked off the Christmas reporting season for the pubs sector, and its peers will be pleased if they get near the festive fizz M&B poured out. Comparable sales grew just under 4 per cent in the core three-week period taking in Christmas and the New Year. And Christmas Day itself saw the group’s likefor-like revenues jump 5.4 per cent.

However, people tend to go out more and eat and drink more over the festive period, so heady numbers then can be misleading. A more accurate picture for M&B maybe comes from the seven weeks leading up to December, when comparable sales rose a much more moderate 1.6 per cent.

It would not surprise me if a similar picture emerges when other pub sector players post their performances. In the greater scheme of things, we all know about the shakeout the UK pub sector has seen, with an estimated one in six pubs having shut down due to economic pressures in the new millennium.

Minimum wage, apprenticeship levy, sugar tax and rising business rates have all taken their toll, and the weakness of sterling since the Brexit vote in 2016 has increased input costs as an added burden.

In an age of Poundlands, discounter supermarkets, food banks and general austerity M&B and its peers cannot pass much of these cost pressures on to consumers. The only recourse they really have is to be stoical about the hit they take to profit margins as a result.

Two dynamics of the sector to the pressures is a constant “refresh” of their pub estates, ploughing money into the growth pubs and getting shot of under-performers as quickly as possible; and an industry move towards highermargin managed pubs and away from the old under-invested tenanted model.

Sometimes the pub industry looks to be running hard to stand still, but managing decline can still be gratifyingly profitable. There is resilience in a business model addressing people’s needs for little pleasures when times are tough.

Nobody is going to reinvent the wheel in the pubs industry, but a certain point of balance has been achieved by the bigger boys between cost headwinds on the one hand and lowish single-digit sales and more modest profit margins on the other.

M&B is a prime example of the glass being half full.