The owner of Glasgow’s famous Horseshoe Bar has warned that surging inflation is harming trade across its UK pubs, with rising costs likely to persist “well into the next financial year”.
Mitchells & Butlers – whose brands include O’Neill’s, All Bar One, Harvester and Toby Carvery, among others – said sky-high utilities, wage and food costs are eroding profit margins while at the same time consumers are suffering from a squeeze on disposable incomes. It joined other industry leaders such as JD Wetherspoon and Fuller, Smith & Turner who have also warned of ongoing cost pressures.
“The trading environment remains very challenging with inflationary costs squeezing consumer discretionary spending and putting pressure on the industry’s margins,” Mitchells & Butlers chief executive Phil Urban said.
“In the face of these challenges, we remain focused on driving sales and efficiency through our Ignite programme and pushing forward with our capital investment plan which we are pleased to see delivering strong sales uplifts.”
The group reported slowing sales growth towards the end of the third quarter, which closed on July 16, as it was hit by hot weather and recent rail strikes. After getting off to a strong start of 2.2 per cent growth in the first five weeks, like-for-like sales for the entire quarter were up just 0.9 per cent when compared to pre-pandemic 2019.
The increase was driven entirely by rising food sales, up 5.5%, with beverage sales down by 4.9%. Taking account of temporary Covid-related closures and site disposals, total sales for the year to date are 1.6% lower than in the same period prior to the pandemic.
Despite the prevailing headwinds Mitchells & Butlers said it remains committed to investing in its pub estate, with 116 conversions and remodels completed so far in the financial year. Among these was the Horseshoe Bar, known for its karaoke and live sport, which re-opened in February after a three-week refurbishment.
The statement from the group was joined by a trading update from Fuller, Smith & Turner, which operates mainly in and around London and the south of England. It reported a 3% rise in total sales on pre-pandemic levels in the first 16 weeks of its financial year.
However, chief executive Simon Emeny noted that the hospitality sector “continues to bear the brunt of many challenging external factors”.
“The industry-wide inflationary cost pressures around food supply, labour and particularly energy are showing little signs of abating,” he said. “Our premium offer and effective supply chain management provide a degree of protection, but we are not immune from its effects on costs or consumer behaviour.”
READ MORE: Owner of Glasgow's famous Horseshoe Bar issues cost warning as inflation weighs heavily on trade
Pub giant JD Wetherspoon warned earlier this month that it is now facing a year-end loss of up to £30m – as opposed to break-even as originally forecast – because of rising wages, increased spending on repairs, and slower recovery in trade in many of its bars.
The group, which has 70 pubs in Scotland, said the recovery for many in the trade has been “slower and more laborious” than expected. Founder and chairman Tim Martin, a vocal critic of government’s handling of the Covid pandemic, said Wetherspoon is trying to take a long-term approach to handling ongoing difficulties.
“When Covid-19 struck in early 2020, most governments, with the exception of Sweden, abandoned their WHO-approved pandemic plans and copied China’s approach by locking down,” he said.
“There have been many unintended consequences. Large numbers of people as has been widely reported, have left the workforce, mainly through early retirement.
“Many people now work from home, rather than from offices, which has had significant impact on transport and hospitality businesses, among other examples. The ‘fear factor’, used by governments to encourage compliance with lockdowns and restrictions, has also had lingering after-effects, with many people remaining cautious about leaving their homes.”
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