Costs of running a bar stabilise

Food at Tonic in NottinghamThe costs of operating a bar or pub in the UK have stabilised for the first time in five years, according to an annual study from the Association of Licensed Multiple Retailers (ALMR).

Its industry Benchmarking Report shows that, for the second year in a row, the average cost of running an average bar or pub stands at 46.5 per cent of turnover, with an additional 11.3 per cent for rent across the leased sector.

The report, which benchmarks operating costs, business performance and market trends, shows the first signs of positive growth across the full range of its indices since the recession, with smaller niche operators continuing to outperform the rest of the sector.

Kate Nicholls, the ALMR’s strategic affairs director, said: “Cost control is a critical determinant of business profitability, particularly in the pub sector where it is a key variable in rent and valuation calculations. Operating costs as a percentage of turnover had been climbing steadily over the five years we have carried out the survey, peaking at 51 per cent at the height of the recession.

“These findings suggest the sector is back on track and has a strong base from which to grow. Better cost control has been particularly marked in the food-led segment of the market and better than average margins and like-for-like sales have been the result.”

After last year’s survey showed investment back on track, this year’s report showed capital expenditure up 28 per cent as operators continue to invest in their estate, their offering and their people.

The trend in like-for-like sales also continues to improve, up by five per cent in the year to October 2011 compared with a fall of 1.8 per cent in October 2008. Companies with fewer than 10 outlets recorded the highest levels of growth, of nine per cent and over. The last time larger players reported better like-for-likes than their smaller counterparts was at the height of the recession in 2008/9.

However, the report sounds a note of caution: costs may have stabilised but this is at the expense of gross margins which are down six per cent. Nicholls said: “There is a strong warning to government in all of this, however. The industry has pared costs back to the bone over recent years in all but one area – cost resulting from changes to legislation. The survey shows costs in these areas spiking – hefty business rates have fuelled 18 per cent increases in premises costs and licensing reform has seen investment in security measures increase by a staggering 60 per cent – and that is frankly unsustainable in the current environment. Retailers’ strong base for growth could be jeopardised by the imposition of further unsustainable costs arising from legislation.”

The survey reveals some inconsistency within the market. While food-led operators continue to drive forward and comfortably outperform the market with like-for-like sales of 8.5 per cent, wet-led community pubs continue to struggle and, for the second year in a row, like-for-like growth has flat-lined.

Those operating under tied leases in particular struggled, reporting below-average capital expenditure, margins and growth and a significant increase in rental costs. For the first time, tied rents overtook rents for free of tie and commercial leases. Over the three years that the survey has tracked them, tied rents have increased by almost a third, jumping from 9.4 per cent to 12.3 per cent of turnover.

Nicholls added: “Taken as a whole these findings reinforce our messages to government: we are an industry well able to generate jobs, invest in community facilities and play a full part in the Big Society. The fact that small, niche operators continue to outperform the market demonstrates in spades that we are the real engine of growth and the best barometer of business and consumer confidence. We have the potential. We need to be freed from red tape and punitive taxes to deliver that in full.”

Pictured: Tonic in Nottingham

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