Food-led sites to drive pub and bar growth past £19bn mark

By Stuart Stone

- Last updated on GMT

Hive of activity: expected strong returns from managed sites is attractive to investors, according to Gerald Edelman
Hive of activity: expected strong returns from managed sites is attractive to investors, according to Gerald Edelman

Related tags Pub & bar Public house

According to the latest report by chartered accountancy firm Gerald Edelman, the food-led pub sector is expected to stabilise overall industry performance in the coming years.

The company’s Hospitality Industry Q3 2019 update forecasts pub and bar sector revenue will grow by 0.7% to £19bn in the next 12 months as a result of strong performance from food-led sites.

Additionally, sector revenue is expected to grow at a compound annual rate of 0.5% over the next five years to 2023-24 and reach the £19.5bn mark.

“Despite the oversupply of the casual-dining market limiting the opportunity for growth, businesses such as JD Wetherspoon has made the most of this trend by offering quick and cheap alternatives to restaurant dining,” the report states.

“Other industry operators have taken different approaches, such as offering a child-friendly menu to encourage demand from families. It is expected that pubs and bars are likely to adapt menus to cater for the increasing health consciousness among consumers.”

Gerald Edelman’s report adds that while a rise in real household income, compared to previous years, and falling unemployment levels have led to increased popularity of premium products, such as decorative gin and craft beer, continued uncertainty around Brexit is expected to see consumers tighten their purse strings.

What’s more, it adds that a rise in health awareness, an ageing population and economic uncertainty could also prove challenging. 

Increased M&A activity

The firm’s report also revealed there have been more than 180 mergers and acquisitions (M&A) in the UK pub sector since the start of 2018, with two of the largest pub and bar transactions announced since July 2019.

It explained that “the prospect of strong returns from high-quality managed pubs and bars presents an attractive opportunity for investors”.

As reported by The Morning Advertiser​ on 18 July, Stonegate Pub Company agreed to buy pubco Ei Group for £1.27bn​, growing the operator’s estate to 4,000 sites and making Stonegate the UK’s largest pub owner.

What’s more, the £2.7bn deal​ for Hong Kong firm CK Asset (CKA) to take over Greene King’s near-3,000 pub portfolio was approved by the pubco and brewer’s shareholders in early October.

“With Brexit uncertainty driving lower domestic consumer spending within the UK, share prices for pubs and bars have fallen since the 2016 referendum,” the report adds. “However, the industry has remained attractive, playing a prominent role in M&A.

“This has stemmed from an appetite for growth by existing businesses in the sector, and a strong private equity interest, with lower share prices creating a ‘Brexit bargain’ for investors.”

Pre-recent acquisitions, Gerald Edelman forecast that the UK’s four largest pub companies – JD Wetherspoon (JDW), Mitchells & Butler (M&B), Greene King and Stonegate Pub Company – will account for more than a quarter of overall pub market share by the end of 2019.

It predicted Tim Martin’s high street giant JDW being the biggest pub player with 8.8% share of market ahead of 7.3% for M&B – the operator of around 1,800 UK sites. What’s more, Bury St Edmonds-based brewer and operator Greene King was expected to hold a 5.8% market share ahead of 3.6% for Stonegate.

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