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Mounting costs pose real threat to on-trade growth

By Nicholas Robinson+

23-Feb-2017
Last updated on 23-Feb-2017 at 11:05 GMT2017-02-23T11:05:46Z

Price hike: pubs are preparing for a tough year
Price hike: pubs are preparing for a tough year

Increasing food and drink prices, as well as business rates revaluations, pose immediate threats to on-trade growth this year, new research shows.

A poll of around 250 senior executives by CGA Peach showed, while confidence in the eating and drinking-out sector was rising, licensees were preparing to face potentially crippling hikes in costs.

The biggest and most obvious fear for operators this year was business rates, with more than half (55%) of industry leaders admitting to be ‘very concerned’ about them and another quarter (24%) saying they are a ‘concern’.

Business rates aside, four in five leaders said they were very concerned (41%) or concerned (39%) about rising food costs, with the availability of vegetables remaining at the centre of the issue.

Increase menu prices

MCA executive director Simon Stenning, who said pubs would inevitably have to increase menu prices this year , identified the threat at the recent MA500 event in Birmingham.

Taking into account that food and drink prices may have to rise, 40% of those asked said they hoped consumer spend per visit would rise.

Soaring rental prices and the addition of the national living wage had also added to the mix of negativity, with three in five of those asked either saying they were very concerned or concerned about the latter.

Increasing drinks prices and the threat of product saturation caused by market oversupply was also identified as a cause for concern by the industry big wigs, according to Peach’s survey.

Yet, pockets of optimism can be seen in the report, particularly for businesses based within the M25, with the majority of those hopeful the buoyancy of the London economy – and the impact of tourism – would provide a boost to their operations.

Newer businesses more confident

Smaller organisations within the eating and drinking-out sector also displayed more confidence than their larger counterparts, with a quarter of businesses less than five years old looking forward to a healthy 2017. This is compared with just 7% of companies established for 10 or more years saying the same thing.

CGA Peach vice-president Pete Martin said: “The Business Leaders’ Survey reveals a sector facing a barrage of input costs in property, food and people, with rates the issue at the top of execs’ in-trays.

“But this is a positive industry that is very much on the front foot rather than the retreat, and that deserves Government support to ease its burden on expenses.”

It was undeniable operators would have to ride out some big challenges this year, he said, but added differentiated operators would be able to deliver a compelling offer keep a “tight rein on their costs” would be well placed to survive the year and beyond.

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