The results of the Association of Licensed Multiple Retailers’ 7th Benchmarking Survey show evidence of market stabilisation and a return to positive growth – investment in property and people is up for the second year in a row and the sector returned to positive levels of growth across the board for the first time since the recession. Across all the KPIs measured by the Annual Report into business performance and operating costs, the news is positive, writes the ALMR’s strategic affairs director, Kate Nicholls.
The headline results from this survey show the first signs of robust growth and confidence, building on last year’s tentative green shoots. Then, cost control came at a price, with staffing and margins taking a hit – a trend that followed across high street retail businesses and the economy more generally and highlighting how good a barometer licensed retail really is.
This year, the results are more uniform across all trading styles and reveal:
A more confident sector
Payroll costs have increased, showing employment and job creation is back on track after a double dip in 2009 and 2011. The fact that this increased spend is being directed at site management shows that this is really about investment in people, training and skills to grow and develop the business, rather than being fuelled by legislative costs. This positive trend is reinforced by a doubling of capex to over 5% of turnover in the past year – investment has almost returned to pre-recession levels, having dropped to just 2% of turnover in 2010.
A more robust sector
The trend in like-for-likes continues to improve, demonstrating that eating and drinking out is a key driver of economic recovery. In the year to September 2011, the sector as a whole recorded like-for-likes of +5.8%, the largest reported growth since the survey began and the first year in which all trading styles reported positive growth. For the fourth year in a row, food-led operators and small multiples with estates of fewer than ten sites significantly outperformed the market – recording average like for likes of +7.5%. With CPI during the period running at 2.2 and with gross margins stabilising and even recovering last year’s -6% dip, this shows the sector as a whole well-placed for real growth.
A wet-led recovery
One swallow doesn’t make a summer and equally one set of figures alone is not always a reliable indicator of health, but for the first time there is reason to be cautiously optimistic about the wet-led segment of the market. Community locals and town centre bars have seen their costs stable for the fourth year in a row, their gross margins significantly improve and their like-for-likes return to positive growth. Together with nightclubs, they are recording the highest levels of capex – the investment in their businesses and premises is up between 200-250% over the past two years.
There is also evidence of further differentiation in the operating model between food-led businesses and the rest of the sector in terms of operating costs, margins and cost structure as well as responsiveness to external factors. The days of thinking that these were just pubs who did more food have gone – the detailed results show that these are now different beasts altogether.
But the results do also show a sector that is volatile and highly responsive to any changes in the external environment. Wet and dry margins may have improved, but the room for manoeuvre and profitability at an overall outlet level is getting squeezed, particularly given operator and consumer sensitivity to price increases.
Average costs of running the average pub have increased
The average cost of running the average pub has increased for the first time in three years. Whilst still some way off their peak of 51% in 2009, common site operating costs now account for 48% of turnover – that is an increase of 3% after a period of stability when costs averaged 46.5% of turnover. These figures vary according to trading style – with community locals averaging 42% of turnover and clubs 65% – turnover mix, tenure and size of company.
Whilst there have been increases in payroll and entertainment costs – as operators look to reinvest in their offer and trade their way out of recession into growth – the biggest spike in costs which has fuelled this increase are those operating costs directly attributable to legislation. These increased by over 7% last year.
Unsustainable cost increases put pressure on margins
Such unsustainable cost increases put pressure on margins and profitability, hampering operators’ ability to sustain this level of investment in people, property and businesses and most importantly generating jobs and growth in local communities.
This is a key message for us to communicate not only to government but also leading suppliers – and we will be making it loud and clear.