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Market snapshot: Pubs

26 April 2005

The market

According to latest government figures, there were 81,455 public houses in the UK last year, 3,751 licensed clubs and 28,164 licensed "residential and restaurant" premises.

By turnover, the industry was worth about £28.6b last year, according to researcher Market & Business Development, using a combination of British Beer and Pub Association and Office for National Statistics figures.

Food accounts for about £6b of this turnover, according to researcher Mintel. The sector employs some 306,147 people, accounting for 19% of the hospitality industry, calculates the Hospitality Training Foundation.

Main players

The two biggest pub landlords in the country are Punch Taverns, with about 6,826 pubs, and Enterprise Inns, with about 8,727 pubs.

Among pub operators, Mitchells & Butlers, with some 2,000 mostly freehold pubs, and Spirit, with about 2,100 outlets, are the big players.

Others such as Wolverhampton & Dudley (534 managed and 1,602 tenanted) and Greene King (960 managed and 1,163 tenanted) are also significant forces in the market.

Growth prospects There appears to be no shortage of demand for pubs, with property prices rising by 9.2% last year, compared with the 6.2% rise seen in 2003, according to agent Christie & Co.

Financially, the market is also relatively buoyant, with Punch last year reporting a 38% increase in profits, Enterprise Inns up a third and Mitchells and Butlers reporting like-for-like sales up by 5.6%, although it also posted a reduction in pre-tax profits.

Year-to-year the British weather and sporting calendar inevitably play their part in how the market goes, with last year's wet summer acting as a dampener on the market after the hot, fine summer and Rugby World Cup of the year before.

Merger and acquisition activity is ongoing, with much of the activity focused around big players snapping up smaller rivals to gain economies of scale.

Good examples of this include Enterprise buying the Unique Pub company in March 2004 and Punch buying Pubmaster in 2003.

Much as in the restaurant and hotel sectors, one factor driving growth has been the arrival of outside players: property development and venture capital firms.

Particularly significant because of the depth of his pockets, suggest City analysts, has been the arrival of property tycoon Robert Tchenguiz, who recently bought 364 pubs from Spirit and 160 from Laurel for £151m.

Key trends

The sector has experienced enormous change over the past decade, and is likely to witness even more in the next 10 years, predicts Mike Coughtrey, head of pubs and restaurants at accountancy firm KPMG.

At an operational level, the minimum wage has been eroding pay differentials between different parts of the country and the Working Time Directive limiting workers' hours has also had a significant impact, he suggests. Increasing red tape and legislation continues to be a burden, too.

At a wider level, there has been a shift away from owned to leased and tenanted properties, with the majority of managed properties now larger units with a strong food element, says Coughtrey.

The decision by the Trade and Industry Select Committee in December that "pubcos" such as Enterprise and Punch are not a threat to competition within the sector will also have brought a sigh of relief in many quarters.

While being tied remains part of the trading scene, the ties are generally much less limiting than they once were, believes Coughtrey.

Food has now become a major part of the pub landscape. According to Mintel, the pub catering market is now worth £6b and the average pub now gets more than 25% of its turnover from food.

The quality of food has much improved, as evidenced by the rise of the gastropub, and the focus is now very much on improving service and customer experience to continue to tread on the toes of the restaurant market.

Alongside this, but of more of a challenge to the market, has been the rise of the off-trade market, which in turn has been closely linked to the growth of ready meals market.

Future direction

On the property side, it is likely that freehold prices will remain more or less stable for the next 12 to 18 months, predicts James Davies of property firm Fleurets. Its last snapshot of the market, in December, reported freehold prices averaging £500,357 to £613,571 in London and the South of England and, at the other end, about £350,000 in the East and Midlands.

Freehold properties are in huge demand, particularly in the South, and people are paying a premium for any properties with a freehold attached, suggests Trevor Watson of Davis Coffer Lyons.

"The ownership and control of properties is being split more and more often," he adds.

At the operational level, the move to non-smoking pubs is likely to have an ongoing impact that the industry will have to manage carefully if it does not want to drive away its core customer base, suggests KPMG's Coughtrey.

The decision in January by JD Wetherspoon to become the first major pub operator to stub out smoking in all of its 650 pubs, by May next year, will therefore be closely watched.

In terms of food, there is already, and likely to be more so in the future, a trend towards the regionalisation of menus, suggests Watson.

"This is particularly the case at the aspirational end of the market. It is becoming an important marketing tool. You can have a national brand with, say, nine out of 10 dishes as standard but then mark yourself out by having a regional speciality," he explains.

The massive amounts of cash injected into high-street pubs in the 1990s means growth there is likely to be limited in the future, at least for the time being, Watson adds.

Sales of meals through pubs

19992000200120022003
£5.2b £5.5b £5.9b £5.9b £6b

Growth in table service

19992000
32% of market 38% of market

Change in average turnover per pub

19992000200120022003
£440,990 £453,190 £462,260 £471,720 £480,570

Source: Mintel/Market & Business Development/Horizons

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