Arguments against food get a hearing
Reality checks are valuable things, aren't they? You know, grounding ambitious plans in the sub-soil of the possible and the practical. The Association of Licensed Multiple Retailers (ALMR) held a useful debate in Brighton last week entitled, provocatively: "If you want to make money, forget food."
As chief executive Nick Bish told delegates, the counter-intuitive point here is that food is not the answer for everybody. Worth remembering the drawbacks before you launch, unthinkingly, down the food route was the message.
So often do you hear the food-is-the-future mantra repeated that it's worth setting out the anti-food argument.
Lining up to put the anti-food argument were dealmaker Peter Hansen, principal of PC Hansen, and Ed Passey, retail director of Interpub. Hansen likened the current levels of investment in food provision to the rush to invest in the high street, a trend that peaked just after the millennium. Whenever there's over-investment, returns collapse, he pointed out. Operators, driven by optimism about growth in a given sector, "don't see the cliff coming," said Hansen.
He also warned about how much the big players, like Mitchells & Butlers (M&B), have been investing in food, increasing capacity in the pub-food market by 9% a year. For many people trying to match the spending of the large managed players it will mean, in all likelihood, low returns on capital. Hansen also reminded operators of the sleeping giants - the 2,000lb gorillas in the room - the supermarkets. Good operators are not "operating in a vacuum", with the supermarkets likely to intensify competition for the food-pound if pubs threaten their market share.
Interestingly, Dan Marlow, operations director for Spirit's value-food division, agreed that the UK dining-out market was unlikely to grow to the size of the US market because UK supermarkets are better operators than their American counterparts. Ed Passey reminded the audience of the economic realities of food provision at the run-of-the-mill tenanted boozer. With average takings of £4,000 to £5,000 a week, food income in the majority of tenanted sites is likely to be around £1,000 a week. With a chef costing £18,000 per annum and a kitchen porter to add to the wage bill, Passey showed that the food service would lose around £300 a week.
Paul Wigham, of the Bar Group, told delegates that he thought a food-take of £2,000 a week was the break-even figure. My view is that the effects of intense food competition are already coming into view. The UK's largest managed operator M&B has admitted this year that sales growth in its Vintage Inns chain has come to a standstill. Company bosses conceded in May the brand had seen "format challenge" - other people pitching for the same customers. Also in May, M&B revealed that Harvester and Toby Carvery sales growth has slowed down - who'd be surprised if increased competition was playing a factor?
While M&B struggles to drive sales growth, Marston's chalked up a 13.3% increase in food sales in the 52 weeks to 29 September. Whitbread is investing heavily at its 400 pub restaurants on the assumption that it can increase sales by 25%. Again, the extra sales will have been snatched from someone.
One speaker claimed that, historically, operators, small and large, have tended to over-invest in pubs, which makes returns hard to keep stable as fresh waves of capital come in. As more operators, tenanted and managed, focus efforts in the food arena, there are bound to be winners and losers.