Benchmarking the sector by Kate Nicholls

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When we hold the annual seminar launching the latest round of the ALMR’s Benchmarking Report – the largest, most robust and most authoritative survey of its type in the sector – the first question I am always asked is, what has changed? And the answer this year is, surprisingly, an awful lot.

As the ALMR has grown and developed over the last nine years since we first started benchmarking KPIs in the sector, so the scale and range of businesses contributing their figures has also expanded – and this leads to some real cross-sector learnings. As our membership has changed, we’ve added in first nightclubs and now for the first time we have a separate set of analysis for casual dining operators.

This year, it is all about food

I’m 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 nine years worth 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.

Trends which have not previously been obvious have suddenly crept up on us and emerged fully formed. 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 all about food.

The emergence of food has been a truism for some time, but this year’s survey confirms its dominance. First, as the leading segment in the market – even looking just at pubs and excluding casual dining outlets it is well over a third of the market. Secondly, as the driver of turnover and trade across all market segments. This year’s survey showed a record proportion of turnover derived from food, at just under 30%, and, for wet-led, sales dropped dramatically to under two thirds of turnover (63%).

The other interesting theme to emerge from this survey relates to the high street. When we started the survey in 2007, the high street was synonymous with drinking – local authorities were still talking about high volume vertical drinking establishments, young people circuit bars. Their terminology and understanding has not changed, but out survey shows the outlets have – and dramatically.

Morphed over that period to look more like food-led pub restaurants

In 2007, high street and town centre outlets had turnover mixes, cost levels and rents which mirrored community wet-led locals. This year’s survey shows that they have morphed over that period to look more like food-led pub restaurants. The only difference is that food led businesses have slightly higher payroll levels. 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’s 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.

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.

Casual diners achieve far better margins

And when you analyse the separate information from casual dining restaurants, you can see that their KPIs are almost identical to that of pub food restaurants. The segments are far closer in financial terms than they might appear at first sight, but casual diners achieve far better margins. The two segments have much to learn from each other – and it is not just one way.

Like-for-like growth across the sector stood at 4.2% over the last year and while this is down slightly on the past two years, for the first time it was consistent across the sector – with only nightclubs and wine bars showing flat growth. Interestingly, coaching inns and food-led pubs achieved higher than average growth at 6% and 5.5% respectively. This was almost double the like-for-like growth achieved by casual dining operators at 3.2%.

The cost of doing business has continued to rise

Over the past six years our survey has been recording detailed like-for-likes, food-led businesses have seen their turnover increase by 52%, high street businesses by 40% and community locals by just 29% – inflation ran at 18% over the same period. High street food-led pubs and casual dining 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 and premises costs, particularly driven by business rates, which jumped to 6.4% 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 principal ways in which national and local governments can encourage this diverse and lucrative part of our economy. We are lobbying 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. And 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 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

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