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Morning Briefing for pub, restaurant and food wervice operators

Wed 28th Jun 2023 - Update: Various Eateries H1 pre-tax loss widens, foodservice prices rise by more than a third
Bassadone – A squeeze on margins of this scale is unprecedented in my thirty-five years’ experience in the hospitality industry: Andy Bassadone, chairman of Various Eateries, the Coppa Club operator, has said that the scale of the squeeze on margins the business is currently experiencing is unprecedented in his thirty-five years’ experience in the hospitality industry. Bassadone was speaking after the business saw its pre-tax loss in the 26-week period to 2 April 2023 widen to £4.3m (H1 2022: loss of £2.6m) and said that it its full-year Ebitda margins as a percentage of sales “will be significantly lower than previously expected”. For the 26-week period ending 2 April 2023, group revenue increased 16% on the comparable period in the prior year to £20.6m (H1 2022: £17.7m). It said that group like-for-like sales, excluding the benefit of the reduced rate of VAT for hospitality businesses in the prior year, were “marginally up”. The company said: “Management is pleased with the revenue performance, particularly given the challenging economic environment, disruptions from train strikes, and an unseasonably wet and dull spring. Trading highlights in the period included the improved revenue performance of our central London sites, which saw like-for-like sales grow by 10% on the same period last year, as the number of office workers and tourists increased.” The group said that its first Noci site in Islington, which opened in March 2022, continues to “outperform management expectations”. It said: “The brand has quickly established itself and, although it currently forms a small part of the group, management expects it to play an increasingly prominent role in the years to come. However, as previously reported, the group, alongside the rest of the hospitality industry, has been dealing with unprecedented cost pressure in the supply chain, energy costs and continuing pressure on wages and related costs. The same period last year benefited from £1.2m of VAT and covid relief which has had a direct impact when comparing gross profit. The combination of these factors has led to a decrease in gross profit to £0.6m (H1 2022: £1.5m) and a loss after tax of £4.3m (H1 2022: loss of £2.6m). The group’s balance sheet remains solid, with cash at bank of £3.1m as at 2 April 2023 (H1 2022: £14.5m).” Following the post-period openings of Coppa Club Guildford and Noci Battersea Power Station, the group now operates 17 venues. Coppa Club Guildford, the brand’s second townhouse offering, opened its doors in April 2023, and the business said it is pleased with how it has been received by the local community and its “strong start to trading bodes well for the future”. Opening in May 2023, the group’s second Noci site, located in Battersea Power Station, has “enjoyed a promising start”. Although early in its existence, the business said it was confident in its ability to replicate the success of the original. It has signed terms on a third Noci site in Old Street, central London. Located in Shoreditch, Noci Old Street is expected to open towards the end of the current financial year. Coppa Club Cardiff and Coppa Club Farnham will open in the next financial year. The company said: “Noting the uncertain economic backdrop however and as previously announced, a rise in the cost of fitting out new venues, management continues to pursue its expansion strategy cautiously and at a measured pace.” The company said that following a review of the trading figures for the first half of the year to end of March 2023 and for the additional two months to the end of May 2023, it wished to update investors in respect of full year market expectations. It said: “In the current economic climate, the board has prioritised sales, customer satisfaction and maintaining the group’s value proposition ahead of trying to maintain previously industry-normal levels of margin. Consequently, although considerable uncertainty remains around the important summer trading period, excluding the impact of postponing certain new openings as a result of the board’s cautious approach in the current environment, we expect full year sales to be broadly in line with market expectations. However, several ongoing factors are continuing to have more of a negative impact on bottom line performance than the board had previously anticipated: Despite sustained falls in underlying commodity prices, food costs are continuing to increase at high double-digit rates, as reported in recent official inflation data. While some of the rises have been mitigated by supply chain management and menu engineering, the company continues to believe that it is better for its long-term strategy not to pass on the full extent of the net price increases to its customers. Variable costs, in particular energy costs, also remain highly elevated and, although there are signs that they are abating in some areas, they continue to substantially impact profit margins. The labour market continues to be extremely difficult. As well as an increase in direct labour costs, this also results in very significant additional costs, notably recruitment and training of staff. Continuing train strikes have a major impact on the company’s larger city centre sites, with a direct impact on revenues and increased challenges for efficient staff rostering. Due to the above factors, the company anticipates that net Ebitda margins as a percentage of sales will be significantly lower than previously expected. Although, there remains considerable uncertainty in forecasting in current circumstances, based on current levels of cost inflation, we estimate that the total impact of increased food, labour and variable costs on site Ebitda margins for the full year to September 2023 as a percentage of sales will amount to approximately 5-7%. Further central cost pressures may amount to a further 1-3% of sales in terms of reduction in total group Ebitda margin. Obviously, the board is continuously reviewing costs and implementing measures to mitigate this shortfall. On a more optimistic note, excluding the effects of train strikes, sales across the group continue to hold up well, the performance of recent new openings has been encouraging, and the availability of sites in prime locations at significantly lower rents continue to increase.” Bassadone said: “A squeeze on margins of this scale is unprecedented in my thirty-five years’ experience in the hospitality industry. Even though we were anticipating a significant downturn, the actual rise in input costs has been much higher and far more sustained than the industry anticipated. In addition to the discipline we are exercising in relation to new openings referred to above, we continue to focus rigorously on the cost structure and operational efficiency and will adapt the way we operate in this environment. With established and desirable brands, a clear growth strategy, and a management team that has a proven track record of growing businesses in good and bad times, the group is well positioned. We will approach the second half in a similarly measured way to the first and remain confident in our ability to accelerate growth when conditions normalise.” Yishay Malkov, chief executive of Various Eateries, said: “I am proud of the way our teams continue to rise to the challenges of the current landscape while maintaining an unwavering focus on delivering exceptional experiences to everyone that comes through our doors. It is thanks to them that our brands have built such strong reputations and remain in such high demand. Looking ahead, while it’s difficult to say with any certainty when the pressures we, and others in our industry are under will subside, we will continue to monitor and respond to further changes in the landscape as necessary.”

Two days to go before release of updated Premium Database of Multi-Site Companies, 16 businesses being added: A total of 16 new multi-site companies, operating 99 sites, have been added to the next edition of the Propel Premium Database of Multi-Site Companies, which will be released on Friday (30 June), at midday. The updated Propel Multi-Site Database, which is produced in association with Virgate, includes regional pub operators, growing restaurant brands, and expanding franchise operators. Premium subscribers will also receive a 1,300-word report on the new additions to the database. The comprehensive database is updated monthly and provides company names, the people in charge, how many sites each firm operates, its trading name and its registered name at Companies House if different. The database now features 2,869 companies. Premium subscribers will also receive the next edition of the New Openings Database on Friday, 7 July, at midday. It focuses on newly announced openings and upcoming launches in the sector and is updated every month. The next edition also includes a 2,000-word report on the new additions to the database. Premium subscribers also receive access to three other databases: the Propel Turnover & Profits Blue Book; the UK Food and Beverage Franchisor Database; and the Who’s Who of UK Food and Beverage. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email to upgrade your subscription. Premium subscribers are also to be given exclusive access to the recording and slides to Propel Multi-Club Conferences. Premium subscribers also receive their morning newsletter 11 hours early, at 7pm the evening before; regular video content and regular exclusive columns from Propel group editor Mark Wingett.

Foodservice prices rise by more than a third in two years: Year-on-year inflation increased again to 21.6% in May, only just below the record high of 22.9% of December 2022, as measured by the CGA Prestige Foodservice Price Index. At the same point last year, inflation in the Index stood at 10.2%, which when combined with the latest figure means prices have risen by around 34% since May 2021. A slowdown in inflation in the first quarter of this year had led to hopes that pressures would ease during the rest of 2023, but improvements in many key upstream indicators have failed to materialise. Food and drink price rises come on top of rising costs in other areas of hospitality and a squeeze on consumers’ discretionary incomes, leaving many businesses operating on very tight margins. On a month-on-month basis, inflation dropped slightly to 1.8% compared to April. Categories that are under particular strain include vegetables, meat and poultry and sugar, jam, syrups & chocolate. Potato prices rose sharply in during May, influenced by rising production costs, labour shortages, a 2022-23 storage crop more than 5% below the prior year, and significant short-supply in many parts of continental Europe. Drought and irrigation are having an increasing impact across Europe on product quality, size and price. Shaun Allen, chief executive of Prestige Purchasing said: “Food prices in the UK hospitality sector continue to increase at just under 2% each month. This rate of increase is likely to be close to a tipping point, where dominant inflationary pressures should start to be eased by competing deflationary factors. The exact timing of this tipping point is uncertain whilst impacts like Brexit, energy, labour costs, interest rates and climate change remain volatile.” James Ashurst, client director at CGA by NIQ, said: “A 34% hike in prices in just two years has been very harmful to hospitality. Added to rising payrolls, ongoing labour shortages and a heavy tax burden, it has left hospitality businesses that were weakened by Brexit and covid-19 – especially independents – in fragile condition. Restaurants, pubs and bars have had no choice but to raise menu prices, which in turn risks a drop in visits. As we move into the second half of 2023, businesses and individuals alike will be hoping for long overdue respite.”

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