ALMR sees ‘green shoots’ in the pub sector

Its annual Benchmarking Report finds that investment in staff and premises are returning to near pre-recession levels, and like-for-like sales and margins are in meaningful growth.

Sales​

The ALMR reports that, for the first time since the recession, all pub trading styles are – on average – reporting positive like-for-like sales. However, over the course of the last five years, food sales as a proportion of total turnover have grown by 39% and wet sales have declined by 8%.

Both of these trends continued in the past year, with food sales up a percentage point to around 25% of average total pub sales, and wet sales down four percentage points to around 68% of average total pub sales. And for first time food sales have come to represent “well in excess of half of total turnover for food-led operators”.

Community locals have finally returned to sales growth after four consecutive years of decline. Indeed, the number community pubs has actually increased as a proportion of the pub estate represented by survey respondents.

The ALMR’s strategic affairs director Kate Nicholls asked: “Have we lost all the fat? Is the sector as a whole now in ruder health? The survey suggests yes it is.”

However, she warned that the sector recovery could be jeopardised by further unsustainable costs. “Costs of doing business are creeping up again, particularly those driven by legislation,” she added.

Costs​

The cost of running a pub, as a percentage of turnover, increased by 1.5 percentage points to 48% in 2013. For leasehold pubs, average operating costs are 49%. This breaks down to 45.1% for tied pubs and 53% for free of tie pubs.

Payroll now accounts for more than half of total costs thanks to increasing investment in staff and manager salaries. At food-led pubs, payroll is around two-thirds of total costs.

Operating costs increase by 6% over the past year, driven by the cost of compliance, and entertainment costs were up almost 5% as pubs spent more money on live entertainment and door supervision.

Rent, however, is now at its lowest proportion of turnover for the past 5 years, and is falling across all pub market segments. For leasehold pubs as a whole it is 10%, though the ALMR notes this figure is slightly skewed by the increasing number of peppercorn entry rent deals, without which the figure would be closer to 12%.

Among tied pubs, rent averages 10.7% of turnover, which is down from 12.3% in 2012, but still higher than the 2010 figure of 9.4%. Among free-of-tie leased pubs, rent averages 9.0%, which is down from 10.7% in 2012.

Capital expenditure has returned almost to pre-recession levels of near 6% of turnover, substantially higher than the range of 2% to 3% from 2010 to 2012.

Margins​

The good news is that sales growth is outpacing cost increases, meaning that margins are improving. In 2013 wet sales are achieving an average gross margin of 64.4%, up from 61.1% in 2012; while food sales gross margins are 60.3%, up from 57.7% last year.

Among tied pubs wet sales gross margins average 61.7%, and food sales gross margins average 58.5%, compared to 66.2% and 61.8% respectively among pubs on free-of-tie leases.

Survey sample​

The ALMR’s Benchmarking Report 2013 survey covers 36 companies operating 2,100 outlets – with all data reported at outlet level. The majority of respondents are small companies – 83% operate fewer than 50 outlets and two-thirds fewer than 20 outlets.

There is a roughly even split between leasehold (53%) and freehold (47%) premises; of the leasehold premises, 56% are with pubcos or brewers, and just 1% of these are free-of-tie (down from 6% two years ago).