The operating costs associated with running a pub or bar are at a seven-year high, accounting for almost half of turnover according to a new report.
The latest edition of the annual ALMR Christie & Co Benchmarking Report found that rising operating costs, particularly payroll costs, threaten to undermine growth in the licenced hospitality sector.
On average total operating costs now stand at 49.3% of turnover, up from 47.7% in last year’s survey. Payroll costs now stand at 27.8% of turnover.
'Payroll costs are set to rise over the short and medium term,' said ALMR chief executive Kate Nicholls. 'Our recent employment survey showed tight profit margins of around 8-12%; a 1.5% increase in costs could reduce them by 11%.
'With the government looking to introduce an apprenticeship levy and increases to the rates of national living and minimum wages, clearly some pubs and bars are going to absorb these additional payroll costs. Businesses need confidence and certainty in order to plan and invest, but uncertainty over the UK’s exit of the European Union could undermine confidence in the sector and threaten investment.
'Sector recession in 2008 had a two year drag on growth and investment and turbulence following the triggering of Article 50 could have a similarly negative effect.'
Now in its tenth year, the report also found that food sales now account for around 32% of revenue for the average licensed hospitality business, with drinks sales falling to their lowest level since the report began. Gross profit margins on food sales were down from last year's 'record' levels to 61.5%, as operators were unable to fully pass on cost inflation to customers.
Neil Morgan, managing director for pubs and restaurants at Christie & Co said: 'In the short term, costs are expected to rise due to currency fluctuations and more expensive imports, and changes in consumer confidence could also impact on levels of discretionary spend.
'In all sectors, operators who can adapt will be the winners going forward. High Street venues are evolving, and their unique presence in the centre of the UK’s towns and cities allows savvy operators to promote daytime trade, whilst simultaneously positioning themselves to benefit from the vibrant evening economies on the circuits in which they are located.
'However, as these segments become increasingly competitive, we may see operators having to fight harder to maintain their market share, which in turn could reduce margins and profitability.'