Cost cutters: ways to reduce the 3 biggest pub costs

By Claire Churchard

- Last updated on GMT

Wave of cost rises: After an expensive year, it's worth setting aside time to prioritise cost management
Wave of cost rises: After an expensive year, it's worth setting aside time to prioritise cost management
As pubs battle ever-rising overheads and the ongoing uncertainty of Brexit, The Morning Advertiser looks at the three main costs for pubs and outlines some ways to cut them down to size

Too busy to save money? As ridiculous as it might sound, many publicans say they have too much to do already without filling in forms to apply for tax breaks or searching through comparison websites to find a cheaper energy deal.

But with wave after wave of cost rises hitting UK businesses in the past 12 months, and more expected to come in the year ahead, it really is worth taking the time to prioritise cost management. A few simple changes could save licensees a lot of money.

To make the most difference, it makes sense to tackle the largest outgoings first.

Three of the biggest operating costs for hospitality have been identified as energy bills, business rates and staffing by the Association of Licensed Multiple Retailers ​(ALMR) Christie & Co Benchmarking Report 2017​.

Managing such large outgoings closely is imperative because the ALMR report showed operating costs grew faster than turnover for the second year in a row – squeezing profits. Average operating costs are now more than 50% of annual turnover for the first time.

“Cost management in a pub is like running your own house,” says British Institute of Innkeeping (BII) managing director Mike Clist. “Most publicans will tell you they don’t have time to do it, but [if you do] you will save a lot of money.

“You do need to spend time on ​your business and in ​your business. You need to take time out and when your electricity bill comes up, don’t just sign up again – go out and compare what you can get,” he says.

Energy bills

No one wants to drink in a chilly, badly lit pub in the depths of winter, making heating and other energy a costly necessity. But, say those in the know, it is possible to cut what you pay.

Energy expert and broker Kevan Enticott from Perfect Clarity, says pubs should adopt a two-pronged approach: use less energy and pay less for it.

Conscious action from the staff running the pub, such as turning off lights when they are not needed, keeping windows and doors closed when the heating is on, and turn heating off when it reaches 21°C can make a real difference.

It is also smart to provide regular meter readings, he says, as this prevents the pub getting into arrears and being landed with a huge bill. Pubs can ask for a smart meter to be installed, which automatically sends regular readings to the supplier.

There have been some concerns about incorrect meter readings leading to huge bills in recent months, but Enticott says: “Whether it is a smart meter or standard, it should be giving the correct reading. If you’re really worried, then ask your supplier to come and check it, but if they don’t find a fault then they will charge you for the call-out.”

He adds that if premises don’t provide regular readings to the energy company, you are asking your supplier to estimate your readings. “We have heard about one underestimation recently where a pub didn’t provide a reading for two years. When the meter was finally read they received a bill for more than £3,000.”

Pubs should consider investing in energy-efficient light bulbs, light sensors in rooms and insulation for the hot water boiler and pipes, as well as regular servicing of appliances to ensure they run efficiently. “You could knock as much as 10% off your bill,” he says.

Brokers like Perfect Clarity can also help pubs get better energy deals.

An energy contract renewal letter should be sent to the pub from the supplier about two or three months before the contract is up. This is the point to start shopping around for a better deal.

Using a broker, however, can help drive the price down further as they look for new contracts about six months before the current one finishes to lock in a lower energy price.

Enticott says: “It’s a bit like buying your holiday in advance, you are likely to get a better deal. The most common and costly mistakes pubs can make is to just take the offer from your current supplier.”

Other brokers and membership bodies like the BII can also help pubs get reduced deals.

Business rates

Business rates revaluations made the headlines repeatedly in 2017 after new valuations came into force in April. Outraged operators reported rises of as much as 400% and warned that it could put them out of business. With rates accounting for such a major outlay, it is vital the valuation is correct.

Robert Hayton, from real estate analytics and advisory company Altus Group, says: “Thinking that your business rates are too high is a reasonably good indicator that your rates are too high. People have a good sense of whether their rates are hurting their ability to trade.”

However, he adds: “What they should not do is just challenge it immediately because it might be that the rates are right as they are based on a strict methodology used by the Valuation Office Agency (VOA).”

Valuations are complicated so seek some advice from the Royal Institution of Chartered Surveyors, he says. They usually give about 30 minutes to an hour of free advice. “Trying to do it yourself can lead to making the wrong decision and challenging something that should not be challenged,” Hayton says. You could even end up with a higher valuation.

James Ward, rating associate at property advice and consultancy firm Harris Lamb, says: “Our advice is to always contact a reputable agent to have the rateable value checked first.” This will save time with the valuation office system, which involves a lengthy 25-step process for publicans to register themselves and the property, followed by a valuation request.”

For an agent to make an assessment on whether your valuation is worth challenging they’ll need to know how profitable the site is. Ward explains: “It has changed from being assessed on headline account figures to looking at profit-and-loss accounts to show what the actual turnover of the pub is to see how profitable it is for that style, be that community pub, food pub or a site that has live music.”

Hayton highlights issues for pubs that make a lot of money from food. “There’s an argument that food pubs are valued more highly than wet-led pubs. This is because some food-led pubs are almost like a brasserie restaurant.

“But the VOA values it like a pub because it looks like a pub. So you get a much higher valuation because the sales are higher. Similar looking properties can be very different in the way they are valued.

“For example, a restaurant that looks like a pub is high value. They are quasi restaurants.”

Ward adds he “can’t stress enough” how important it is to contact someone before challenging a valuation.

“Save yourself a lot of time by contacting a reputable agent. Disclose your trade to them, let them tell you whether your valuation is correct or not, and let them take the action for you from there.”

Rates relief

If you think you may qualify for a potential relief
on the rate charges at your pub, try the
following websites:

- ​Business rates relief http://bit.ly/2jcChgd

- ​Small business rates relief http://bit.ly/1xDTBxR

- ​Rural rates relief http://bit.ly/2CU8rWp

- ​Hardship relief http://bit.ly/2zkk60L

If you decide that challenging the pub’s valuation is not for you, you can still ensure you are getting all the rates relief you are entitled to. Details of what is available can be found on the VOA website and on the Government website (see Rates relief box out for more on this). And Ward adds that reputable agents will always be happy to point you in the right direction with advice on rates relief.

Staffing costs

Staff can make or break a pub, and with employee costs making up 27.9% of a pub’s average operating outlay (Source: ALMR report), it’s important to ensure you’re getting value for money.

Paying people more money might sound like a counter-intuitive way to manage your wage bill. But Charles Cotton, senior adviser for performance and reward at the Chartered Institute of Personnel & Development, says that if you’re spending a lot on recruitment and selection, because people keep coming and going, then you may need to think about paying a higher wage.

Rewarding staff for a job well done is another way to reduce costly employee churn, which is particularly important as good job candidates are harder to attract as UK employment remaining relatively high at more than 70% of working-age people.

It would be difficult to introduce performance-related pay for pub employees because things like how many pints you can pull at a certain time depends on how many customers are there, he says.  However, for gastropubs where food and service affects the reputation and ongoing success of an establishment, employers might want to offer a bonus or reward linked to customer service. You could ask for feedback from customers and reward the whole staff, Cotton suggests.

Staying within the laws on minimum pay is another way to positively manage costs (see wage levels box below).

Wage levels

Current rates for the national living wage and the national minimum wage, which came into force in April 2017, are as follows:

- ​25 and over - £7.50            

- ​21 to 24 - £7.05            

- ​18 to 20 - £5.60

- ​Under 18 - £4.05

- ​Apprentice - £4.05

Source: https://www.gov.uk/national-minimum-wage-rates

“It may sound a bit trite to say ‘make sure you’re paying the national living wage’,” says Cotton, “but if you have people whose hours vary from week to week, you need to be on top of it, and especially if their age changes.”

Employers that fail to pay staff what they’re entitled to can face huge fines as well as being named and shamed by the Government.

Cotton says hourly wages change between the ages of 18 and 25, so it’s important to make sure you deal with that on your system or have it set up to change automatically as their age goes up.

There are other tax breaks worth considering. For example, all employers are now required to offer a workplace pension for workers aged 22 and over earning at least £10,000 a year and there is the potential to run it as a ‘salary sacrifice scheme’.

The Money Advice Service defines a salary sacrifice scheme as one where an employee agrees to exchange part of their salary so they can get extra benefits from their employer. When applied to pensions these schemes can reduce the cost to the employee and the employer through lower national insurance contributions.

For advice on how to do this, employers can speak to one of the big pension schemes that deal with smaller organisations, for example NEST, the workplace pension that was set up by the Government. They can explain what you need to do to be able to get salary sacrifice.

Is it worth the effort? Cotton says: “It depends what your wage bill is. For example, if you run a gastropub and you’re paying a chef and people who are dealing with the food quite a bit of money, it can be worthwhile as it can provide a saving. But a pub that perhaps doesn’t do much food, where the biggest labour cost is people serving drinks, then it may not be worth your while.”       

Related topics: Professional Services & Utilities

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