Inside track by Rob Willock
The pub sector has been dissected and studied in two new reports from Mintel - Pub Visiting and Pub Catering (May 2013) - which together offer 316 pages of industry analysis.
It’s a long read that provides a range of insights – and so M&C Report has endeavoured to cut a swathe through these weighty tomes and provide a management summary of the highlights…
Industry structure
The first thing to note is the reasonably positive tone of the reports, and their cautiously optimistic vision of the future of the pub industry.
Mintel notes the long-term decline in the number of pubs in the UK, but adds: “The now-streamlined industry should be better equipped to thrive in the longer term, with the current total estate of around 50,000 pubs sufficient to serve the UK’s ageing population.”
The report makes repeated Darwinian references to the survival of the fittest, arguing that the recent market contraction has left us with a smaller pub population in better shape to take advantage of opportunities and weather future threats.
“It appears that the worst is over,” says Mintel. “The industry was in fact rather ‘flabby’ and the slew of pub closures has rid it of many of its weakest performers. With closures lower than a few years ago, the pub industry is better placed to take control of its own fortunes and focus on its strengths.”
Mintel expects the net closure rate of pubs to slow down to less than 10 per week within the next couple of years and even to reach a tipping point by 2017 “when net openings nudge ahead of closures”.
This, Mintel believes, will depend on a range of factors such as the pace of the economic recovery, improvements in consumer finances, management of cost inflation and regulatory burdens on pub operators and a progressive development of the pubco/tenant relationship.
Pubs and bars remain an important part of the £69bn leisure industry, accounting for 31% of the total market size in 2012 (down from 37% in 2006) – second only to restaurants (36%), and well ahead of gambling (14%), fitness (4%), theatre, music concerts etc.
Industry custom
Mintel’s latest research shows that 60% of adults say they visit pubs to drink – up from 57% in 2012. One in five can be described as a “pub enthusiast”, drinking in pubs on a weekly basis – a group with a strong bias towards men and 18-24-year-olds. “Meanwhile,” reports Mintel, “30% of adults adopt a more disengaged approach towards drinking in pubs, doing so at a frequency of once a month or less, while 40% never do.”
Pubs have long benefited from a reputation for offering value-for-money against other leisure options, but low consumer confidence has dampened enthusiasm for spending on drinking/eating out and forced operators to more proactively chase footfall.
Price continues to be an important factor in people’s choice of pubs, but Mintel finds that – as a deterrent to visiting – it is a lesser consideration than cleanliness and service. “As discretionary spending continues to be closely scrutinised, pubs are having to work harder to justify the consumer’s decision to visit them instead of drinking/eating at home.”
The customer will increasingly accept no excuses for poor retail standards in their quest for a cost-effective and enjoyable experience. The main turn-offs for customers are: dirty toilets (53%); poor customer service (47%); an unwelcoming atmosphere (44%); overcrowding (42%); and shabby décor (26%).
These aspects of a pub’s prospects of success, at least, remain in the hands of its staff.
Mintel argues: “Rather than laying the blame externally, pubs should be looking to matters within their control. While being easier said than done, the solutions for pubs are in fact clear and hardly revelatory. A balance between the traditional and modern, clean and comfortable facilities and a good range of well-priced drinks served to a high standard are all factors which should help a pub to thrive.”
It is, perhaps, wishful thinking to imagine that the lure of improved in-home entertainment and catering will diminish any time soon, and Mintel does not anticipate any significant upturn in pub footfall. But it does see modest annual growth driven by increasing prices and the relaxation of household budgets. Based on these factors, it expects the pub market to reach £24.3bn by 2017, 13% higher than the current level of £21.6bn.
Its modelling suggests a best-case scenario of £29.1bn, well above pre-recession performance; and a worst-case of £21.1bn, which would entail a 2% market contraction.
Product mix
Of course these total figures mask a meaningful shift in the mix of products and services offered by pubs. Alcoholic drinks now represent ‘just’ 51% of pub sales, and will surely soon become a minority category – albeit still the largest by a good margin.
Food and soft drinks represent the fastest growth areas for pubs – at 30% and 12% of total sales respectively.
Pub food has comfortably outperformed other pub revenue segments in recent years, helped by its perception as a value proposition when compared with restaurant fare and an industry focus on menu innovation. It is expected to continue to grow strongly from its current market value of £6.6bm to £7.8bn by 2017 (forecast range £7.2bn to £8.4bn).
“But,” warns Mintel, “with price and menu range no longer being the venue differentiators they once were, the onus is also on [pub] operators to enhance brand differentiation. As such, conveying a strong sense of ‘brand personality’ will be increasingly important in order to cultivate more emotive connections with diners in a market with low loyalty levels.”
In such a highly competitive market, brands are increasingly being adjusted to adopt more clearly defined positions – to target the specific demands of key consumer groups and not to be seen as ‘jack of all trades and master of none’.
Mintel predicts the eating out market will continue to self-segment, with strong growth predicted particularly from both the pre-/no family (+1.4% by 2017) and retired (+11% by 2017) lifestages.
Demographics and technology
The ageing UK population is both an opportunity and a threat to the pub market, specifically in relation to the growing number of over-55s, who – as a group – are currently the least likely to visit pubs. Falling numbers of 18-24-year-olds (the most likely pub visitors) and rising numbers of 25- to 34-year-olds, who are surprisingly infrequent visitors, will provide pubs with additional problems to contend with.
Mintel observes that: “Balancing tradition with modernity is an important deliverable for pub operators. Many customers prioritise the comfort and tradition of pubs, but outlets which cling to this image too closely risk alienating the important younger demographic.”
Many pubs have been slow to embrace technology, thereby forgoing the opportunity to enhance the customer experience, and address some of their frustrations, such as long queuing times. While upcoming research from Mintel shows a relatively low current level of interest in using mobile apps in the pub environment, this is likely, in part, to reflect the lack of awareness and deployment of these innovations.
Smartphone and tablet ownership have risen steadily in recent years, reaching penetration levels among adults of 62% and 24% respectively; and 19% of pub visitors say they would be interested in using these devices to order food and drink from the table.
Summary
Mintel concludes: “Pubs continue to be an important but embattled part of the UK leisure industry, with closures slowing but remaining an all too regular occurrence. Despite being championed for their ‘Britishness’ and importance to local communities, pubs remain under pressure as consumers cut back on drinking out of home.
“As many consumers demand more from their pub experience, this should help standards to increase, something which has already occurred with the rejuvenation of ‘pub grub’.
“Pubs need to deliver on ‘experience’ and fight to justify the price difference between the on- and off-trade, or else risk seeing footfall subside further as consumers migrate to the significantly cheaper in-home channel.”
So, what can the industry take from Mintel’s latest assessment of the pub trade? Its forecasts for volume and value growth, driven by increased levels of spend from existing pubgoers, are positive and welcome. Every sensible business person will tell you that it’s easier to get another pound from an active customer than it is to get the first pound from a new customer.
But upselling can only get you so far. It is disappointing that Mintel does not anticipate any significant new business from the 40% of adults who say they never visit the pub.
With a smaller, but more perfectly formed UK pub estate, one would hope that those pubs that have survived the recent ‘perfect storm’ of economic conditions, and emerged out the other side in better shape as a result, might be able to entice the non-pubgoer through their doors. If not for a traditional vertical drinking occasion, then for good food, TV sport, clubs and society meetings or any of the other footfall drivers at pubs’ disposal.
The days of simply throwing open the doors and welcoming a thirsty, affluent crowd are long gone for most pub operators. We all know that high retail standards and effective promotional activities are essential for pubs to survive and thrive.
Pubs must address the needs and desires of those groups that don’t spend their time and money in pubs (especially the 25- to 34-year-olds and over-55s), but choose to engage with other media and leisure outlet types. No pub can be all things to all people, but if each pub finds its own niches, and its own segments of society to serve, then we stand every chance of stabilising the sector, and returning it to growth.
Is that light I see at the end of the tunnel?
