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Morning Briefing for pub, restaurant and food wervice operators

Mon 20th Jul 2015 - Benchmarking survey shows sector turnover up 4.2%
Benchmarking survey shows sector turnover up 4.2%: The UK’s licensed hospitality sector continues to make a consolidated recovery and grow in confidence, but rising legislative costs mean increased volatility and risk undermining a fragile revival. That’s according to the ALMR’s 2015 Benchmarking Report in association with Christie + Co. The Report, now in its ninth year, benchmarks operating costs, business performance and market trends and shows a more confident sector pushing on from last year’s positive performance with employment back on track. According to the Report, margins have improved following last year’s tightening, but operating costs directly linked to legislation, particularly in the late night sector, have risen. Whilst there is consumer confidence and the sector is in growth, the recovery is still delicate and could be undermined by additional cost burdens.

The headline results of the survey show:

A consolidated recovery: last year’s report showed a more confident and robust sector with costs under control and capex, employment back on track. That trend continues this year and like for likes continue to improve as operators trade their way out of recession.

A more robust sector: as the recovery continues, there is evidence of less variation across the outlet universe and within market segments. There is evidence of a levelling up.

Which may be jeopardised by unsustainable costs: after last year’s tightening, margins have improved, but the volatility in this area and that of employment highlights ongoing fragility. Operating costs directly linked to legislation, particularly those in the late night sector such as levies and licensing fees, have risen. It is clear that, whilst the sector is well placed for growth, continued economic challenges and lack of consumer confidence mean there is little headroom for operators to absorb any additional cost burdens.

ALMR chief executive Kate Nicholls said: “The results of this year’s Benchmarking Report are encouraging. This year’s edition of the Report is the largest so far and for the first time we have included casual dining outlets in our survey to more accurately reflect the changing nature of the sector. We are still seeing positive signs of growth with respondents reporting a 4.2% rise in turnover over the year, although that figure has slowed slightly since last year’s rise of 4.8%. Pubs and bars are continuing to trade their way out of recession and showing signs of continued confidence. That confidence is at risk however and increased volatility and rising costs both have the ability to undermine much of the good work we have seen over the past few years. Payroll costs remain the single biggest cost area accounting for 26.4% of turnover, 2.2% points more than last year and the highest recorded since 2011. Recent trends have shown this to be a discretionary area of spend with businesses investing more in their staff when conditions allow it, although additional expansion is being constrained by pressure on margins, limiting the sector’s ability to grow. Costs related to legislation and regulatory enforcement continue to grow and place burdens on operators. There is much optimism to be found in the latest round of the ALMR’s Benchmarking Report and signs that the sector continues to prosper despite difficult economic times. Our message to both local and national governments is that this recovery is not bulletproof, however and increasing legislative costs could undermine much of our good work.” Neil Morgan, director and national head of public houses at Christie + Co said: “The outlook for the sector is positive and within Christie + Co we have seen increasing activity across all areas in the licensed and leisure sectors. However, with a rating revaluation on the horizon, the tenanted pub sector facing the Market Rent Only (MRO) option and a hike in Living Wage, the sector does remain challenging. Expert advice has never been more important and we are in a strong position to view the implication of these changes for the market as we have advised on over £6bn of assets within the last 12 months (representing over 12% of the UK pub sector). One of the standout facts of the survey for us is the rise in payroll costs from 24.2% to 26.4%. As the most recent government budget includes a significant increase to the Living Wage, we must consider how this will affect landlords and pub operators in the coming years as the payroll costs will certainly rise; whether this be at the detriment of headcount, expansion or a variety of other factors. Another key fact for us was the fall in rents, down from 10.5% to 9.3%, and the lowest in the nine reports the ALMR has created. The issue of rent continues to be high on the agenda. The tenanted pub sector is facing the implementation of an MRO option and following the outcome of this decision we will assist our clients to fully understand the implications for them.”

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