Hospitality insights

The role of pubs in the hospitality sector

Trefor Griffith Trefor Griffith

Over the last 12 months, the power has shifted significantly from business owner to the consumer, with a vast amount of cross-sector competition for consumer spend. British pubs, despite playing a central role in British culture, have found it particularly testing.

The steep rise in business rates which arrived in October and the weak British pound has caused concerns for many, especially for small pubs in economically deprived and vulnerable areas. Industry group Camra (Campaign for Real Ale) warned that increased business rates could devastate the sector and called for a £5,000 annual reduction for every pub across England.

Last year we saw the National Living Wage rise again and Brexit continue to dissuade overseas workers from migrating to the UK, driving up employment costs and reducing workforce availability. These elements combined with stagnating disposable income in market towns across the country, saw many independent pubs close.  

Despite the challenges, we saw successes across the sector in 2017 from those firms which worked to adapt to changes in the market. Groups which increased quality as well as investing in existing assets, continued to grow. Pub owner Oakman Inns and Restaurants reported a turnover increase of more than 20% over the 12 months to April 2017. Elsewhere, Mitchell & Butlers – owner of brands including AllBarOne and Harvester – focused on providing offers during the festive season, resulting in strong December trading results. It is likely that other brands will follow suit and use promotions to entice customers as competition intensifies.

A critical tactic for the London-based brewery and pub group Fuller's has been to adapt an existing estate to provide accommodation alongside drinks and dining. In January this year the business posted strong figures for the 42 weeks to 20th January. Like-for-like sales in the Managed Pubs & Hotels division rose 3% for the period, like-for-like profit in Tenanted Inns rose 2%, while beer and cider volumes in The Fuller's Beer Company remained static.

Economic conditions have not been the only challenge pubs have faced in the last 12 months. With consumers making cost a higher priority when eating out, casual dining institutions have been lowering their price point and adapting their business models. As a result, pubs face heightened competition from this segment.

In response, pubs are emphasising quality with the second coming of the gastropub group. Improving quality across sites, service and food has been the driving force behind many of the success stories from the last 12 months. This includes Penta Capital-backed gastropub, The Seafood Pub Company. The eight-year-old business reported a 22% increase in sales in 2016 over the previous year, proving its focus on high quality food is paying off.

Towards the end of last year, we saw the City Pub Group through its IPO on London’s Alternative Investment Market (AIM). In January, the Group reported that revenues for 2017 reached £37.4 million and, whilst largely due to expansion, like-for-like sales also increased by 3.8%.

City Pub Group creates premium pubs with individual identities, with a product range influenced by their local market. This is a strategy which has been pivotal to its success as consumers seek more “independent” venues in which to eat and drink. The Group has also been vocal about its recruitment and retention of high quality staff through regular training and incentives, contributing to its reputation as a provider of first-class customer service. In line with current consumer trends, its future plans include opening a vegan-only pub in West London, as well as adding more meat-free and dairy-free options to the menus of their existing pubs.

A focus on enhancing and improving existing sites is likely to be emulated by other operators as we continue through 2018, and those businesses which are able to adapt to changing market conditions and consumer preferences will ultimately come out on top.