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Morning Briefing for pub, restaurant and food wervice operators

Wed 18th May 2022 - Update: Mitchells & Butlers Q2 lfls up 3.8%, Marston’s H1 lfls at 97% of FY2019
M&B Q2 lfls up 3.8%: Mitchells & Butlers has reported like-for-like sales growth in the second quarter of 3.8%, resulting in overall like-for-like sales growth of 1% in the 28 weeks to 9 April, despite the adverse impact of Omicron over the important festive period. The company said it made a “strong start” to the year with like-for-like sales growth of 2.7% over the first eight weeks. The company said: “This encouraging performance continued until early December when concerns first arose around the emergence of the new covid variant, Omicron, leading to calls for further caution in socialising such that, over the seven weeks to early January, like-for-like sales declined by 6% resulting in a decline of 1.5% over the first quarter. Sales strengthened in the second quarter, with the news that the Omicron symptoms were mild, with like-for-like sales growth of 3.8%, bringing first half growth to 1%. Volumes remain in decline of between 10% to 15%, with sales being driven by premiumisation and increases in spend per head. Sales have remained stronger in food-led brands, particularly at the more premium end of the market. At the end of the first half, the rate of VAT on food and non-alcoholic drinks returned to its full rate of 20%. On an underlying basis, excluding the impact of this rate change, sales continued to strengthen in the five weeks since the end of the period, to 2.2%. Food sales continue to outperform drink with like-for-like sales growth of 6.9% over the first half, and with premium brands continuing to perform well, helped by the reduced rate of VAT. We have more recently observed an encouraging trend of recovery in city sites, with like-for-like sales growth of 1.1% during the second quarter, as people begin to return to offices, albeit trading in some areas of London, such as The City, still remains relatively subdued. Drink sales continued to be challenged across the sector and like-for-like sales declined by 6.9% in the first half, with suburban locations seeing the largest declines.” Total revenue for the half year stood at £1.159bn (HY 2021 £219m), while operating profit was £121m (HY 2021 £(132)m loss), and profit before tax of £57m (HY 2021 £(200)m loss). Net debt reduced to £1.253bn (HY 2021 £1.472bn). The company said: “Cost inflation headwinds present a major challenge to the hospitality sector as a whole, most notably in utilities, wages and food. Cost headwinds, based on FY 2019 and on a cost base of £1.8bn, are expected to be in the region of 11.5% for the current year. Equivalent to 3.7% on an annualised basis across the three-year period. Next year, current assumptions indicate an increase of c.6% on a year-on-year basis but high volatility in energy markets could have a material impact. Through accelerated and focused delivery of a new set of Ignite initiatives covering sales, productivity and cost reduction, alongside tight control of the business, we are working hard to mitigate these costs as far as possible. However, there will inevitably be a residual margin impact in the short to medium term. The cost environment has worsened since our last announcement, with the war in Ukraine driving up energy and food prices in particular. At the current time we have bought c.80% of this year’s total energy requirement and c.10% of next year’s. We continue to work hard to offset as much of these additional costs as possible, with our Ignite programme continuing to be an effective method through which to do so. However, the industry as a whole will undoubtedly feel the impact of increased costs in the short to medium term. The pandemic resulted in consumer trends such as home delivery being accelerated and we have expanded our offer to benefit from this growing market. We now have over 1,100 sites live with Just Eat, Uber Eats and Deliveroo and we offer takeaway and click and collect orders directly to guests across a number of brands. Annual delivery and takeaway sales are estimated to rise to c.£45m this financial year.” Phil Urban, chief executive, said: “We are encouraged by the improvement in sales trajectory through the first half of the year, having made progress in each of our markets, with our food-led businesses continuing to lead the way. The trading environment remains difficult. Cost headwinds present a significant challenge to the industry, particularly those costs related to utilities, wages and food. In light of this, our teams have refocused their efforts on driving further efficiency and productivity gains through our Ignite programme. In parallel, we are pushing forward with our capital investment plan which we are pleased to see delivering strong sales uplifts. The fundamental strengths of the business remain, and we are well positioned to continue on our trajectory of recovery following the pandemic.” In the year to date, the company completed 63 investment projects including 57 remodels, three conversions and the acquisition of the freehold of three leasehold sites. It said it was continuing to see strong performance from its investment projects with an average sales uplift of nearly 30% from projects completed since FY 2019.

Dessert shop concepts among those added to second UK Food and Beverage Franchisor Database, released on Friday: Two dessert shop concepts expanding in the UK are among the 20 new franchisors featured in the second UK Food and Beverage Franchisor Database, which will be sent to Premium subscribers on Friday (20 May), at midday. The second edition will feature 120 companies and almost 47,000 words of content, providing insight on the offer, locations, cost and other key details. Among them is Egg Free Cake Box, the specialist retailer of fresh cream cakes, which currently has circa 190 stores in the UK and announced in 2021 that it planned to open at a rate of two to three new sites a month – its latest opening being at Rugby’s Swan Centre. Also featured is crepe and gelato brand Crepe Delicious, which has grown to 70 outlets overseas and has targeted having 28 UK locations by 2025. Premium subscribers also receive access to The New Openings Database, the Propel Multi-Site Database and the Turnover & Profits Blue Book. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £895 plus VAT – whether they are an operator or a supplier. The single subscription rate is £445 plus VAT for operators and £545 plus VAT for suppliers. Email jo.charity@propelinfo.com to upgrade your subscription. Subscribers also receive access to Propel’s library of lockdown videos and Friday Wrap interviews and now also have access to a curated video library of the sector’s finest leaders and entrepreneurs, offering their insights on running outstanding businesses in the sector. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before our 6am send-out; regular video content and regular exclusive columns from Propel group editor Mark Wingett. 

Marston’s H1 lfls at 97% of FY2019: Marston’s has reported like-for-like sales stood at 97% of 2019 for the 26 weeks ended 2 April 2022, but that like-for-likes sales were down 0.9% in the final ten weeks compared to the same period three years ago. The company said: “Total revenue for the 26 weeks ended 2 April 2022 was £369.7m (H1 2021: £55.1m); this is significantly higher than the same period last year reflecting the disruption to H1 2021 trading as a consequence of the pandemic, but also includes some disruption to revenue in this period following Omicron restrictions. The group’s pubs in Wales and Scotland were more significantly impacted than those in England by the tighter restrictions that were enforced during the period. Total like-for-like sales for the period were 97% of FY2019, being the relevant pre-covid comparator period, reflecting the impact of the Omicron variant and consumer sentiment related to this during the critical Christmas trading period. Total EPOS sales in our managed and franchise pubs were 99% of H1 2019. Drinks sales have outperformed food sales during the period. Prior to the emergence of the Omicron variant and the introduction of renewed restrictions, like-for-like sales in the first eight weeks to 27 November were +1.3%, like-for-like sales declined by (8.8)% in the following eight weeks as a result of the disruption. The final ten weeks of the period to 2 April 2022 were (0.9)% below FY2019. The underlying loss before tax was £7.5m (H1 2021: loss of (£122.4m)). Underlying operating profit of £37.9m (H1 2021: loss of (£77.8m)) comprises underlying pub profit of £39.9m (H1 2021: loss of (£57.2m)) and loss from associates of (£2.0m) (H1 2021: loss of (£20.6m)). On a statutory basis, the group generated a profit before tax of £25.6m (H1 2021: loss of (£105.5m)).” The company said that trading since the half year end “remains encouraging” despite the current inflationary pressures households are facing, with increased cost of living from energy bills and food. Total like-for-like sales in its managed and franchised pubs are slightly higher relative to 2019. The business said that its Brains estate was performing well despite longevity of restrictions in Wales. It said: “We have significantly reappraised the menus across the business, launching them in the first week of April with positive initial customer feedback. Whilst our ‘Two for One’ format which currently operates in 76 pubs has served us well over the years, it has become more challenged more recently and we have therefore taken the opportunity to reposition this part of the portfolio. During the first half year we have successfully trialled a switch from the Two for One price mechanic to a single price point which has delivered an encouraging sales outperformance relative to the control group. As a consequence, we have decided to accelerate the removal of Two for One from the portfolio with a view to completing this exercise by the end of the current financial year. These pubs will continue to follow the segmental journey outlined below in future years; however, we are confident that swift action will improve the performance of these pubs in the interim.” Andrew Andrea, chief executive, said: “We are pleased that since restrictions lifted trading has largely normalised enabling us to return to profitable trading, as well as focusing – and making considerable progress – on our strategic growth plans towards achieving £1bn of sales. We remain on track to reduce the group’s debt by the end of FY2022. We continue to evolve our estate to maximise returns and will have transitioned away from the value food segment, our Two for One brand, by the end of September. Investment into our estate through conversions and refurbishments continued in H1, with a further eight projects scheduled in H2, targeting a minimum return of 30%. Whilst mindful of the challenges which every hospitality business currently faces, trading remains stable and we look forward to an uninterrupted summer. We are navigating our way through cost increases, mitigating these as much as we can through cost efficiencies and pricing strategies, whilst welcoming customers back without compromise to the best Marston’s guest experience. The pub remains the home of affordable socialising and has continually proven its resilience in previous times of economic challenge. We are operating a ‘business as usual’ mindset, positioning the group’s balanced and well invested pub estate for future sustainable like-for-like growth over the medium to long term.”

Consumers cutting back on restaurants and fashion: Consumers are most likely to cut back on eating out and fashion as they adjust their spending to cope with the cost-of-living crisis, a survey has suggested. However, fewer than half (46%) said they would cut back on holidays and travel, suggesting that cancelling trips already delayed by the pandemic is out of the question for many. Of the 1,000 people questioned, just 21% plan to reduce spending on gym memberships. More than two-thirds of consumers (69%) say they would try to save money on eating at restaurants or ordering takeaways, while 60% said they would reduce spending on clothing, according to research for Advertising Week Europe. While the squeeze on living standards has caused two-thirds of respondents to adjust their lifestyle, the crisis has been most keenly felt by those older than millennials. Some 72% of 42 to 67-year-olds say they have already started to make changes to how they spend. Some 69% of millennials – those aged between 26 and 41 – have made lifestyle changes to deal with the crisis, decreasing to fewer than half (49%) of 18 to 25-year-olds. Some 39% of all respondents reported their energy bills having increased by between 50% and 75%. Advertising Week Europe president Ruth Mortimer said: “It is particularly notable that all generations have had to make significant lifestyle adjustments to deal with rising costs. For young people, it’s clearly not a simple case of reducing expenditure on coffee and avocados, despite what some may think. In a world where cost is becoming king, brands now have serious decisions to make about balancing affordability for consumers with other factors like product origin and sustainability.”

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