Finance: Tough choices

Smoking or food? If it comes down to it, you will need the right tools to make the decision, writes profitability expert Colin Marsters.

Licensees could be facing a tough decision over the next few years. If the government goes ahead with the plan to ban smoking in premises where food is prepared it will come down to either allowing customers to smoke - or offering them something to eat.

Although food is a fast-growing part of pub business, a poll on thepublican.com in November indicated that six out of 10 pubs were considering dropping food in order to keep their smoking customers. Alternatively, around 90 per cent of pubs in England and Wales - around 50,000 businesses - would have to ban smoking by 2008 if they wanted to continue serving food.

Hopefully the trade won't be forced into such a choice. If it is, it's a decision that can only be made by the licensee - and you'll need the right tools to make it the right one for your business.

One way to approach it is with the ABC rule.

A is for aspirations​

What kind of pub do you really want to run? Was it your dream to run a busy boozer for drinkers, or a pub that draws in customers with its veritable mix of food and drink, and friendly and welcoming atmosphere?

Only you can set the style of your business - and no matter what the figures tell you which will be more profitable, if it's not what you see in your mind's eye, it may not be for you.

A smoking ban could, in certain circumstances, be turned to your advantage. Have you been wanting to ban smoke for some time but worried about the reaction of some of your customers? Blame it on the ban.

Equally, if food's been a millstone round your neck and you would like to encourage a sound customer base of smoking locals, this could possibly be the time to do it.

B is for bottom line​

What will make you the most money? You need to check on the profit contributions of the food and wet trade sectors of your business. The accepted industry wisdom is a 70/30 wet/dry split - but you may be a gastropub or an old-fashioned boozer with a different bias.

The example shown below is what happened when we did the profit contribution exercise with a local pub after it carried out an informal survey among its customers. It shows estimated changes in sales if it was to go either with smoking or food. You can make your own analysis by substituting your pub's figures in the table below.

Our publican found to his surprise that he would be better off profit-wise if he stopped serving food. He estimated that if he banned smoking he could expect to lose 20 per cent of his wet sales, but could anticipate a 10 per cent increase in food sales. On the other hand, if he allowed smoking to continue, he could expect an increase of 10 per cent in wet sales.

A ban on smoking in his pub could lead to a possible drop in his profits of £1,210 a month, and by withdrawing his food offer, a possible drop of £820. In either case a fall in profits could occur so it would be essential for him to get his pricing right and maintain maximum possible profit margins to redress the balance.

Despite these figures, if it comes down to it he says he will continue to run the traditional food-serving pub he and his partner always dreamed of and ban smoking.

Remember - aspirations sometimes count more than cash.

C is for customer needs​

What do your customers want? Have you asked them? And have you asked the ones who really count?

In most pubs 80 per cent of custom comes from just 20 per cent of customers, and it is those customers who will help you make your decision. Any meaningful survey should concentrate on that 20 per cent - your regulars.

So talk to them. Look around the bar, check ashtrays. But don't take the evidence at face value - you may have only a small band of smokers, but if they are your staunch regulars they are a small minority representing a large percentage of your turnover.

Don't completely ignore your passing trade either. A YouGov survey recently revealed that 27 per cent of infrequent pub visitors would go to the pub more often if a smoke ban was in place.

Regardless of the thinking behind your decision - to base it more heavily on aspirations, profit alone, or customer needs, it is essential to talk to your customers. Make them feel their views are valued.

And if you are forced into choosing between smoking and food you will need to be sure you squeeze every ounce of profit out of that decision.

Colin Marsters is a founder of the Innprofit Company which produces the Innmate Profit Pack for the licensed trade. For more information go to www.innmate.co.uk​