Pubs must battle back as sales fall and costs rise

10 July 2008 by
Pubs must battle back as sales fall and costs rise

A drop in turnover and spiralling costs have taken their toll on the pub industry, but there is positive action licensees can take, reports Christopher Walton

The pub sector has been a tough place to do business in recent months. Two major pieces of research released last week crystallised the double whammy that is hitting the profits of licensees - customers are spending less and running costs are rising.

A survey of 5,600 pub customers by research group Him! revealed that UK pubs are missing out on almost £5m in food sales each week as pub-goers go out expecting to spend an average of £11.38 a head on pub food, but end up forking out £10.79. A small difference, perhaps, but across the industry it adds up to £4.9m.

The same is happening with drinks sales. Customers intend to spend an average of £9.32 a head on drink, but leave having spent an average of £8.50, causing the industry to let £150,000 a week slip through its fingers.

Meanwhile, a survey of 2,675 pubs by the Association of Licensed Multiple Retailers (ALMR) revealed that the average pub now spends 53% of turnover on controllable costs, including 27% on payroll and 11% on premises, excluding rent.

Grim reading

Such figures make grim reading, but there are plenty of ways for licensees to address falling sales, said Katie Littler, client director at Him!, pointing to research that shows the average pub-goer is a lower-middle class married male, aged 24 to 34 - much the same as the core customer in 2004.

"Who are you not attracting and who else could you attract?" Littler asked licensees at the study's launch. "You are attracting a lot of men, but there is still a huge opportunity to attract more females.

"Men generally know what they want when they go into a bar, whereas women are more open to influence and are less likely to know what kind of drink they want.

"In the on-trade, there is not a hell of a lot of impulse buying and you need to ask how you can encourage people to buy more in your pubs."

The industry also needs to improve its customer delivery, the Him! research revealed. Only 17% of those surveyed said food in pubs exceeded their expectations, and 92% of customers said no member of staff had notified them about current promotions. One way of addressing this and increasing sales is to table-service in pubs, Littler said.

Anthony Wallis, managing director of Charles Wells Pub Company, agreed that improving the customer experience was paramount. "If pubs are going to survive, we have to get better at retailing," he told Caterer. "If customers do not enjoy the pub, they do not come back."

And doing nothing is certainly not an option. The ALMR warned that continuing falling sales could plunge some operators into the red unless they took steps to address their operating costs..

Kate Nicholls, head of communications at the ALMR, urged publicans to review their costs. "If you find your utility bills are significantly higher than the industry average, use this data as leverage with your suppliers," she said.

Nicholls also urged licensees to "negotiate firmly with landlords" over rent reviews because increased operational costs would harm a pub's ability to pay its rent.

But amid all the doom and gloom, it is important that the pub industry does not talk itself into a recession, warned Greene King chief executive Rooney Anand.

Great value

"Pub food still offers great value when you compare it with restaurants," he said. "I'm not complacent about the challenges the economy poses for pub businesses, but I think the downturn and the impact on pubs has been overblown."

The Him! research did support his assertion - to an extent. It showed that the number of respondents who had been to a pub in the previous seven days had risen from 15% in 2007 to 16% now, while the number going to restaurants had fallen from 20% to 16%.

It seems pubs are just about holding their own, but there is no doubt that, without major efforts to address falling sales and rising costs, the industry will face some painful realities over the next 12 months.

The pub problem

Customers are falling…

  • 22% of customers are visiting pubs less frequently

  • 2.9 purchases are made per customer every 90 minutes

  • 40% think pubs offer good value for money

…while costs are rising

  • 53% of turnover is spent on operating costs

  • 27% of turnover is spent on staffing costs

  • 4% of turnover is spent on utilities

Sources: Him! and ALMR

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