Leading analyst Mark Brumby at Langton Capital says that there have been several positive recent developments in terms of cost reduction for the pub and restaurant sector in the UK.
Brumby said: “The Low Pay Commission’s recommendation of a 3% National Minimum Wage rise looks set to be accepted by the Government. Industry comments suggest that this won’t rock the boat too much, and indeed may be a boost to some C2/D operators.
“Food price rises are now slowing as the BRC has announced that they increased an annual 1.1% in February, the lowest rate in 7 years.
“The Restaurant Group and others have said that there is only modest upward pressure on rents and we’ve drawn up a quick chart showing how these changes could impact a hypothetical company in the sector.
• Revenues up by 3%
• Costs up by less; F&B up by 1.1%, labour up by 3%, rent up by 1.6%, other occupancy costs up by 2%
• Leads to a margin increasing from around 15% to 16.3%
“The figures are fairly rough, with the rent being extrapolated from The Restaurant Group’s assertion that rent increases by c8% per five year rent review, and 3% revenue growth estimated from the improving trend in the Coffer Peach Business Tracker’s rolling 12 month like for like sales growth figures (+0.7% Sept, +1.5% Oct, and +2.4% Jan) and the fact that the industry is facing soft comps for the early part of this year.
“Comps are easy through March (snow last year) and the late Easter should, all things considered, see better weather than would a March holiday. Summer comps will be tough but the upcoming trading statement should be positive.”