Sales for show, profit for dough

I suspect no-one will be hugely shocked that pubs are struggling to grow their profits due to rising costs. But a number of you might be very pleasantly surprised to read that more pubs are reporting sales growth than are reporting a decline in sales — by a ratio of 4:3.

Better even than the actual sales performance of the pubs in our survey is the growing confidence of the people running those pubs. Nearly half of survey respondents are predicting an increase in turnover during the next 12 months, outnumbering the pessimists by 2.5 to one.

For an industry that has suffered the ‘perfect storm’ of economic stagnation, tax increases, health legislation and home-centred changes in consumer behaviour, any signs of progress are welcome.

That growth would be so much easier to come by if the trading and regulatory environment was more benign, so we must redouble our efforts to petition the Government for better support.

While our lobbying exertions are laudable and extremely important, we must not rely solely on external help for things that remain outside our direct control. So what can licensees themselves do to ensure that any precious increases in turnover they achieve are converted to the bottom line on the P&L?

I had an interesting conversation with members of the PMA team last week (well, I thought it was interesting!) about the trade-off between satisfying customers and controlling costs.

Now, that might seem like a strange thing to consider — shouldn’t you aim to satisfy customers at all costs? The answer to that question is a firm no, especially if the effort involved in achieving customer satisfaction makes the whole endeavour loss-making.

I’m sure it’s possible to engineer a family car that would surpass all the requirements of the average motorist, or to design a home computer that would go way beyond the total needs of the typical family. But what would be the point?

Your aim, as a business owner/manager, is to ‘satisfice’ your customers — that is to do what is sufficient to satisfy them. No more, no less. You need to optimise your retail offer only to the extent that it delights your customers and makes them want to return.

Obviously there are compliance things that must be done to the highest standard — food hygiene, for example. But consider if that expensive suite of replacement furniture is necessary, whether the extra member of staff on weekday lunchtimes is critical, or if you really need a website to rival the BBC in terms of content and complexity.

You might be able to justify all these things and more if your offer is premium enough to generate a strong return on those investments. But if they simply add cost without boosting sales, think again.

A business leader’s prime duty to his or her shareholders is to maximise profit. And if the shareholder happens to be you, you are only cheating yourself by spending beyond what is necessary.