Last week the ALMR published the eighth edition of its annual Benchmarking Report, the most comprehensive and definitive sector report, which identifies market trends and benchmarks business performance and operating costs. This authoritative source of information is used by politicians, industry analysts and valuers as the most accurate source of information regarding the licensed hospitality sector. Drawing information from single, multi and national site operators, from pub, casual dining and late night markets, it gives a unique insight ,cut by trading style, size of business and ownership model.
I am always fascinated to see the story emerging from the raw data provided to us by operators about the health of our industry and the way in which it is changing. With eight years of data to mine, there are really insightful trends to examine: turnover shifts and offer mix, plotting market trends and cost lines against the recession timeline and the erosion of differentials between market segments over time as costs and margins squeeze.
But there are also the individual stand-out stories from each edition. Last year, this was clearly around the bottoming-out of the wet-led decline and the fact that community locals were turning the corner. This year, it is the turn of the high street to step into the limelight.
In fact, over the course of the eight Benchmarking Survey rounds, the high street has gone from the Cinderella of the sector – the source of high volume vertical drinking, symptom of decline and something to be embarrassed about – to become the star turn. What is really surprising is that it has also replaced the community local as the average pub in terms of our survey data, on costs, turnover mix and margins. It is not just that the high street has become politically fashionable, it is the new normcore. And it is outperforming the market in almost every success metric: like for likes, investment, jobs and growth.
Over the course of the Benchmarking Report’s seven-year history, we have observed the emergence and domination of the food-led pub. In 2007, food-led pubs accounted for one in four outlets in the managed universe, the third largest trading style. Food-led outlets now lead the way, accounting for a third of the total managed universe, with significant transfer into the food-led segment from other trading styles. According to the data from CGA, there are now 12 new openings for every single closure in the food-led market segment with openings being driven, in particular, by branded high street operators. They now account for over half the growth in licensed retail overall.
It has become a truism over our survey period that food-led businesses will outperform the market, and they are now joined by their high street counterparts, where informal and casual dining is as important as capturing the late-night market. These are genuinely hybrid outlets and they are playing a significant role in defining and evolving the UK’s eating and drinking-out market.
High street and casual dining venues saw almost double-digit growth in like-for-likes over the past year, more than twice as much as the sector as a whole. Last year, like-for-likes on the high street increased by 9.9% on average, the highest increase in any sector and this compares favourably to the survey average of 4.8%. Over the past five years that our survey has been recording detailed like-for-likes, food-led businesses have seen their turnover increase by 44%, high street businesses by 24% and community locals by just 14%, effectively standing still, as inflation ran at the same amount over the same period.
At the same time, this year high street businesses recorded above-average levels of investment, with capex of 3.4% of turnover – 17% more than the sector average.
In a survey which noted a general tightening of margins, again, high street food-led businesses bucked the trend. Gross margins on food sales stood at 64% with wet margins at 66.6%, both around three percentage points above the survey average and six percentage points higher than their wet-led community counterparts.
High street and food-led pubs are arguably the strongest aspect of a sector that has shown consolidation during tough economic times. The UK’s town centre and suburban retail and eating-out markets have undergone something of a renaissance over the past few years, with casual dining brands at the heart of this growth. This year’s ALMR Benchmarking Report shows what a robust offer we have, and what an exciting time this is for eating-out.
There is also a note of caution in this year’s report. The cost of doing business has continued to rise as national and local authorities continue to burden retailers with prohibitive legislative costs. Operating costs associated with legislation now stand at a record high of 5.5% of turnover. Of course, this seriously affects a business’s chances of succeeding and, in an increasingly competitive marketplace, the margin between success and failure for high street operators is thin.
This is where we come in. The ALMR’s Manifesto for jobs and growth in licensed hospitality sets out some of the principle ways in which national and local governments can encourage this diverse and lucrative part of our economy. We are lobbying with the government to ensure a fair and flexible property market, tackling the competitive disadvantages in the business rates regime, commercial lease terms and rents which hold back high street investment. We want to reduce the unnecessary costs of doing business and encourage licensing officers and planners to have a positive regard to economic growth in their decisions. Finally, we want to see responsible operators who invest in their people and their property incentivised through tax credits.
The sector is well placed for further growth and our Benchmarking Survey shows that high street casual dining and food-led outlets are leading the way. If we can continue to impress upon the government the need for flexibility and fairness, we look set to capitalise on this great work.
Kate Nicholls is chief executive of the Association of Licensed Multiple Retailers.
This article was originally published by Propel Info. GS Systems has published a 10 point cost control guide to help multiple retailers use technology to control their costs. A free download is available here.