Pub operating costs stabilise for first time since 2007
Britain's pubs and bars can finally deliver economic growth and jobs as they show signs of recovery from a ‘perfect storm' of the smoking ban, falling consumer confidence, and recession.
That's the view of the Association of Licensed Multiple Retailers (ALMR) which has just completed its Benchmarking Report, which looks at operating costs, business performance and market trends.
The study found that operating costs had stabilized at 46% of turnover, the first such stablisisation since 2007. But costs directly attributable to legislation had risen by 29%.
Kate Nicholls, ALMR strategic affairs director, said: "Cost control is a critical determinant of business profitability - particularly in the pub sector where it is a key variable in rent and valuation calculations. Operating costs as a percentage of turnover had been climbing steadily over the five years we have carried out the survey, peaking at 51% at the height of the recession. These findings suggest the sector is back on track and has a strong base from which to grow. Better cost control has been particularly marked in the food-led segment of the market and has contributed to higher margins - up 14%- and improved profitability as a result."
"There is a strong warning to government in all of this, however. The industry has pared costs back to the bone over recent years in all but one area - cost resulting from change to legislation. The survey shows these leapt by almost a third over the course of the last year - largely as a result of the imposition of the Mandatory Code and changes to glassware - and that is frankly unsustainable in the current environment. Retailers' strong base for growth could be jeopardized by the imposition of further unsustainable costs arising from legislation."
The survey also showed that investment appears to be back on track, with average capex of 2.5% of turnover. The trend in like-for-like sales has also improved - up by 3% in the year to October 2010 compared with a fall of -1.8% in October 2008. Companies with fewer than 10 outlets recorded the highest levels of growth of +5% and over.
However wet-led community pubs continued to struggle and like-for-like growth has flat-lined. Those operating under tied leases in particular struggled - reporting below average capex, margins and growth and a significant increase in rental costs.
Kate Nicholls added: "Taken as a whole these findings reinforce our messages to government - we are an industry well able to generate jobs, invest in community facilities and play a full part in the Big Society. The fact that small, niche operators continue to out-perform the market demonstrates in spades that we are the real engine of growth and the best barometer of business and consumer confidence. We have the potential; we need to be freed from red tape and punitive taxes to deliver that in full."
ALMR increases membership by 20% >>
Pubs face £100m in extra licensing fees, ALMR warns >>
By Neil Gerrard
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