The survey, based on a poll of 27 companies, reports “clear signs of a consolidated recovery” with positive growth and a second year of cost control. But it warns that greater stability within the sector could be threatened by burdens being imposed by Government and local authorities.
Headline figures show eating and drinking out turnover up 3.5%; like-for-like sales up 5%; capex sustained at 3% of turnover and long-term average costs steady at 48% of turnover on average.
Kate Nicholls, chief executive of the ALMR, said: “This demonstrates that we are the real engine of growth and the barometer of business and consumer confidence. We have the potential; we need to be freed from red tape and punitive taxes to deliver that in full.”
Operating costs directly linked to legislation have reached a record high of 5.5%, while premises costs — driven by business rates — are now 6.5% of turnover.
Nicholls said: “There is a strong warning to Government in all of this. Those sectors delivering the greatest growth and investment — food led, high-street operators — are also those reporting the greatest pressure from legislative costs and business rates. While the sector is well placed for growth, it remains highly responsive to external pressures. Get it wrong and investment in jobs, outlets, high streets could all too easily suffer.”
Operating costs
The survey asked companies to breakdown what percentage of their turnover was accounted for by certain common operating costs. These were identified as employment (gross costs including tenant’s drawings); entertainment (including subscription costs for Sky/BT Sport as well as PRS and PPL payments, live entertainment and security costs); utilities; operational (including cleaning, laundry and glassware) and premises (including rates, insurance and minor repairs but not rent or capital works).
The survey found the average pub spent 47.8% of turnover on these running costs before rent and cost of sales are taken into account (down slightly from the 48% recorded in last year’s survey).
Of this total, employment costs now account for 24.2% of turnover – the lowest recorded in the survey since 2010 and more than two percentage points below the 2011 figure. However, the ALMR admits the figure is distorted by “a small number of very low responses from the nightclub sector; if these were reweighted, the average payroll cost would be 26% of turnover”.
The survey also shows that while overall payroll costs have fallen between the 2013 and 2014 reports, manager salaries have remained at 6.5%.
Utility costs have remained at a similar level year-on-year at 3.7% of turnover.
Premises costs were 6.4% of turnover, similar to previous years but down significantly on 2008, when the preparation for the smoking ban pushed the percentage up to almost 11%.
The most dramatic rise has been in operational costs, which hit a record high of 5.5% of turnover. The report says increasing responsibilities related to new legislation have driven the rise – with costs up by more than 8% over the last two years and over a third higher than 2007.
Entertainment is described as “the most erratic cost centre”, now accounting for 6.3% as opposed to 5.4% last year and a low of 3.8%. However, current costs remain below the peak of 7.1% in 2010 when the report claims there was a “significant shift away from entertainment”. The ALMR puts the steady increase in costs over the last three years to RPI increases in bare costs but also demonstrates operators taking advantage of deregulation in live entertainment and the choice in live sports broadcasting.
Rents
On average rent made up 10.5% of leasehold estate turnover – a rise of 0.5 percentage points from last year and close to the long term average of 10.7% over the course of the benchmarking surveys.
The report says that without the impact of peppercorn rents the average in leasehold would be around 12% of turnover.,
After two years of tied leasehold rents being higher as a percentage of turnover than in commercial free-of-tie leases, the two figures are broadly equivalent this year.
Capex
Average capital expenditure in the most recent survey (it has measured since 2009) reveals it made up an average 2.9% of turnover – a sharp decline from 2013 when it was more than 5%. The ALMR says this represents the “cyclical and lagging nature of investment”.
In a shift in trends from last year, both the leasehold sector and companies with more than 30 sites reflected the highest level of capex. Last year’s figures were boosted by capex of almost 10% of turnover by midsized companies with 10-30 outlets.
Across the whole survey, average gross margins were 64% on wet sales and 59% on dry, both slightly down on last year but above the lows recorded in the 2012 report. The ALMR said “renewed pressures on margins reflects the investment in staff and outlets which took place in a market where there is a protracted squeeze on prices driven by broader concerns about the cost of living and consumer confidences”.
Ownership
On average controllable costs were higher in the freehold sector (48.9%) than in leasehold/tenanted (47.8%). Costs in the freehold sector were also significantly up on last year (46.7%) with small falls in leasehold cost structure. The differences are accounted for by payroll, operation and premises costs. However, leasehold properties also have an additional 10.5% in rental costs on top of the controllable site costs, pushing the overall cost burden to an average 57.6% of turnover.
