The Association of Licensed Multiple Retailers’ (ALMR) latest report finds that this is the second year in a row that the average cost of running a pub stands at 46 per cent of turnover, with an extra 11 per cent for rent across the leased sector.
This suggests that costs have stabilized for the first time since the industry was hit by the smoking ban, the recession, and the consumer confidence crash, said ALMR, a trade group for pub and bar operators.
Pubs back on track
“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,” said Kate Nicholls, ALMR strategic affairs director.
“Operating costs as a percentage of turnover had been climbing steadily over the five years we have carried out the survey, peaking at 51 per cent 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 per cent – and improved profitability as a result.”
The Report – which benchmarks operating costs, business performance and market trends – shows that investment in the pub sector is back on track, with average capital expenditure (capex) of 2.5 per cent of turnover.
The trend in like for like sales also continues to improve – up by 3 per cent in the year to October 2010 compared with a fall of 1.8 per cent in October 2008. Companies with fewer than 10 outlets recorded the highest levels of growth of 5 per cent and over.
Wet-led pubs struggle
On the down side, the survey shows that wet-led community pubs continue to struggle.
Despite the growth recorded by food-led operators, like-for-like growth for wet-led pubs 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.
In addition, pubs across the sector are reporting higher costs directly linked to legislation, which have now increased 29 per cent.
“The industry has pared costs back to the bone over recent years in all but one area – cost resulting from change to legislation,” said Nicholls.
“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.
Nicholls said that these findings should come as a warning to government, as retailers’ strong base for growth could be jeopardised by the imposition of further unsustainable costs arising from legislation.
However, as a whole the latest benchmarking report shows that the pub and bar industry is “well able to generate jobs, invest in community facilities and play a full part in the Big Society,” she said.
“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.”