All Bar One operator Mitchells & Butlers (M&B) said it expects the consumer's appetite for drinking and eating out in pubs to worsen as the economic gloom continues.
Speaking at the group's AGM today M&B chairman Drummond Hall told shareholders overall like-for-like sales for the 17 weeks to January 24 rose one per cent, with trading at the start to the New Year proving "resilient".
"We saw a slow build up in early December followed by a strong two week Christmas period. January trading has been resilient amidst a challenging market," he said.
However Hall said recessionary pressures were intensifying "and as a result, we expect continued sizable declines in on-trade beer volumes and a significant contraction in the eating out market".
But Hall said he expected M&B's pubs, particularly its value-oriented sites, would increase its share of the market.
M&B's overall like-for-like food sales were up 2.6 per cent, with drink sales up 1.2 per cent in the period.
Hall said the group's cask ale volumes rose 18 per cent, but noted that machine revenue fell 6.1 per cent.
Cost increases, including duty and food and drink inflation meant that M&B's gross margins had fallen by two percentage points, but "strong gains in staff productivity from investment in training and scheduling systems and continuing overhead cost reductions, are mitigating the operational gearing effect on net profit margins".
The group's value-oriented residential pubs, which account for more than three quarters of M&B's turnover, saw sales up 1.7 per cent.
While its High Street operation had benefited from a strong performance from its central London pubs estate this was not enough to mitigate although a dip across its late evening venues meant overall revenues in the division dipped 0.3 per cent.
Hall said the focus on value meant the average price of a meal in an M&B pub was £6, while its standard lager was 40p a pint cheaper than the average leased pub.
The group said it was on course to reduce debt, and had received £20m of a contracted £52m for pubs it had sold.