By Scott Wright
TWO of the UK’s biggest pub companies have warned that surging energy, food and wage costs will have an impact on earnings, as official figures showed inflation had reached its highest-rate in 40 years in April.
Mitchells & Butlers, which runs a vast portfolio including Glasgow’s Horseshoe Bar, declared yesterday that cost inflation poses a “major challenge to the hospitality sector as a whole”.
While the company highlighted various steps it was taking to mitigate costs, it warned “there will inevitably be a residual margin impact in the short to medium term.”
Mitchells& Butlers, which has an estate of more than 1,700 pubs, outlined the cost pressures facing the industry as the company returned to the black in the first half of its financial year. It made a pre-tax profit of £57 million in the 28 weeks ended April 9, boosted in recent months from the easing of Covid restrictions after the Omicron outbreak.That followed an interim loss of £200m the year before.
Chief executive Phil Urban said: “We are encouraged by the improvement in sales trajectory through the first half of the year, having made progress in each of our markets, with our food-led businesses continuing to lead the way.
“The trading environment remains difficult. Cost headwinds present a significant challenge to the industry, particularly those costs related to utilities, wages and food. In parallel, we are pushing forward with our capital investment plan which we are pleased to see delivering strong sales uplifts.”
Marston’s, which has 1,482 managed, franchised and leased pubs, published its interim results yesterday that showed it had narrowed pre-tax losses to £7.5m from £122.4m. It noted that first-half like-for-like sales had recovered to 97 per cent of their 2019 level – in spite of trading disruption arising from the Omicron outbreak before Christmas.
The Midlands-based company hiked revenue to £369.7m from £55.1m, and said trading in the six weeks since period-end was “slightly higher relative to 2019”. But while Marston’s said it was managing inflationary challenges within its control, and was able to offset some of those pressures with “cost efficiencies and pricing strategies”, it warned that “there will inevitably be some impact on our earnings for the year despite the mitigating actions.”
Andrew Andrea, chief executive of Marstson’s, said: “Whilst mindful of the challenges which every hospitality business currently faces, trading remains stable and we look forward to an uninterrupted summer. The pub remains the home of affordable socialising and has continually proven its resilience in previous times of economic challenge.”
Tim Martin, chairman of JD Wetherspoon, responded to the rising costs facing pubs yesterday by repeating his call for the UK Government to slash value-added tax for the hospitality industry, declaring that the move would help curb soaring inflation. VAT was cut to 5% shorty after the pandemic took hold and was set at 12.5% for several months before eventually being restored to 20% in April.
Mr Martin said: “The Government’s decision to return VAT to 20% in April has affected the entire hospitality industry and is a contributory factor in the rise in inflation. It does not make economic sense that food bought in pubs, restaurants and cafes attracts VAT of 20 per cent, when food is VAT-free in supermarkets.
“The argument is even more valid now as the increase in VAT from 12% back to 20% in April has been one of the factors in the increased rate of inflation. The Government should reduce VAT from the current 20% in the hospitality industry and as well as benefitting businesses and customers, it will, I believe help in lowering inflation in the months to come.”
On Wednesday, C&C Group, owner of Tennent’s Lager, warned it may have to increase prices for customers for the second time in six months given the inflationary backdrop.
Shares in Mitchells & Butlers closed down… while shares in Marston’s closed…
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