Independent pubs may be having a nightmare but the big boys are keeping their heads comfortably above water.
It’s not easy, by any means, and the likes of Mitchells & Butlers are facing the same cost issues as their smaller confrères, but the advantage they have is scale, providing resilience in the face of unprecedented headwinds.
That scale enables the Harvester and All Bar One operator to buy things like energy, food and drink more cheaply. The devastating pub closure rate is also to their benefit as it rids M&B of a big slice of the competition as well as easing some of the pressure on pricing.
M&B has long been regarded as having one of the best pub estates in the business, with strong brands that have been consistently well invested. It is all too easy to be tempted into cutting back on that investment in the pursuit of improving margins, but Phil Urban, the group’s chief executive, has resisted that temptation, completing 34 conversions and remodels in the first quarter, and is being rewarded with strong numbers.
While trading during the festive period was generally strong across the board, with both food and drink sales doing well at the top line, the same could not be said about the bottom line. So while the likes of Revolution Bars Group joined in the party spirit and delivered strong takings, their ability to turn those sales into profit was altogether more difficult.
M&B, with its scale, investment and a first quarter delivering like-for-like sales growth of 7.7 per cent, not to mention abating cost pressures, is now expected to hit the top end of consensus.
The most recent update from M&B was for the 15-week period to January 13, including a couple of weeks of Dry January. Yet despite anecdotal evidence that this was set to be one of the toughest Januarys for years, excepting Covid lockdowns, like-for-like sales growth in the last seven weeks of the first quarter accelerated to 8.2 per cent and trading since mid-January may not have been as bad as feared. For the first time in many years, like-for-like sales increases are exceeding cost inflation.
According to the CGA RSM Hospitality Business Tracker, which measures like-for-like sales for restaurants, pubs and bars, the sector was broadly flat, up 0.1 per cent year-on-year, for the month of January, down from 8.8 per cent in December.
Pubs’ sales were stronger, with growth of 1.5 per cent, while restaurants’ sales rose by a more modest 0.9 per cent, which may be a sign of consumers trading down. The lower headline figure was brought down by bars, which went backwards to the tune of 13.6 per cent as the 18-26 age group reined in their spending.
James Wheatcroft, head of travel and leisure research at Jefferies, suggested the current seasonally quiet quarter may see a rise in industry site closures as both quarterly rent and post festive period VAT fall due.
With the exception of the 9.8 per cent increase in the national living wage, cost pressures are now easing, notably energy prices and food inflation, while a decent chunk of the investment Urban is pushing through is in energy efficiencies.
Anna Barnfather, leisure analyst at Liberum, is forecasting M&B will spend £180 million this year on capital expenditure, both maintenance and expansionary, on its largely freehold estate. Miller & Carter, its steakhouse chain, remains one of its best-performing brands and, as a result, is one of the main recipients of capex.
M&B, created in 2003 through a demerger of the old Bass brewing empire, has about 1,760 venues. Its biggest shareholder, with 55 per cent, is Odyzean Group, a consortium of sporting tycoons including Joe Lewis, John Magnier and JP McManus. Urban has said there are no immediate plans to restore the dividend, a decision that the consortium had supported. The strategy remains deceptively simple: to pay down its debt as it grows its profit.
Advice: Buy
Why: A series of upgrades has put it in on target to rebuild margins back towards pre-pandemic levels.
