9/22/2016 | Pubs

Additional costs could undermine growth in the pub sector

Neil Morgan, Managing Director - Pubs & Restaurants, explains why pub operators need to keep watch on costs.

Today, we launched the ALMR Christie & Co Benchmarking Report 2016, which shows that rising operating costs, particularly payroll costs, threaten to undermine the growth of an evolving and innovative sector.

This report benchmarks operating costs, market trends and sector performance and is the most comprehensive study of its kind in licensed hospitality. The tenth edition of the report shows the average costs associated with running a pub at a seven-year high, with payroll costs accounting for almost 30% of turnover.

The report also underlines the continued evolution of the licensed hospitality sector with food sales now accounting for 32% of revenue. 

Gross profit margins on food sales were down from last year’s record levels to 61.5%, as operators were unable to fully pass on cost inflation to customers. This casts doubt over their ability to pass on increasing labour and legislative costs, which could threaten future profitability. 

In the short term, costs are expected to rise due to currency fluctuations and more expensive imports, and changes in consumer confidence could also impact on levels of discretionary spend.

In all sectors, operators who can adapt will be the winners going forward. High Street venues are evolving, and their unique presence in the centre of the UK’s towns and cities allows savvy operators to promote daytime trade, whilst simultaneously positioning themselves to benefit from the vibrant evening economies on the circuits in which they are located.

However, as these segments become increasingly competitive, we may see operators having to fight harder to maintain their market share, which in turn could reduce margins and profitability.