13 March 2012

Tough Start to 2012 for Restaurant and Pub Chains

Britain’s leading pub and restaurant groups are reporting tough trading conditions at the start of 2012 – with collective like-for-like sales down 3.7% in February, following a 2.1% fall in January.

Total sales in February, which include the effect of new openings, were only marginally up on last year at +0.6%. Month-on-month, February sales were up 8.4% on January.

The figures come from the Coffer Peach Business Tracker*, the industry sales monitor for the UK pub and restaurant sector, which collects monthly performance data from 23 operating groups.

“These are disappointing figures, as over the past two years the informal eating and drinking-out market has generally kept its head above water despite everything the economy has thrown at it,” said Peter Martin of Peach Factory, the business intelligence specialist that produces the sector Tracker, in partnership with KPMG, UBS and the Coffer Group.

“It might be a prolonged hangover after what was bumper trading over Christmas and the New Year, or it might signal a new tightening of consumer belts – certainly poor weather played it’s part. The market will do well to remain cautious, but also focused on giving customers, who may be looking for something new, a compelling reason to go out. We are still predicting another essentially flat trading year,” Martin added.

The market had recorded collective like-for-likes up 9.9% in December, with total sales ahead 13.7%.

The latest more downbeat Tracker figures are inline with other published data, with JD Wetherspoon reporting like-for-likes down 0.7% in the six weeks to 4 March. Pubs generally continue to trade better than high street restaurant chains.

“A major challenge for groups in the coming year will be how they handle the issue of discounting and vouchers, which have been important factors for many groups in attracting business over the past two years,” added Martin. “Our recent survey of senior executives in the industry suggested that most wanted to either peg or reduce discounting and vouchering this year, although they doubted the rest of the market would follow suit. Most see more benefit in developing digital, especially mobile phone, marketing activities.”

Trevor Watson, Director of Valuations at Davis Coffer Lyons, said, “Although the longer term pictures remains broadly flat, the short-term results for February, which reflect the adverse weather during the month, are naturally disappointing. Value for consumers has never been better in the eating-out market, and as some operators look towards moving away from discounting there could be a small increase in spend per head later in the year.

“Operators continue to remain focused on margin preservation. Clearly London operators are looking to maximise the benefits of the Diamond Jubilee and the Olympics. These provide a fabulous opportunity, but will lead to some re-distribution of trade and some operational challenges.”

Richard Hathaway, KPMG’s Head of Travel, Leisure & Tourism, added: “Trading conditions for the sector remain tough and they are likely to be with us for a while. The cold weather in early February added to the challenges presented by still fragile consumer confidence.

“However, over the past 18 months we have seen just how resilient the UK’s eating and drinking out market is and total sales growth remains positive due to the impact of recent and continued investment by the major pub and restaurant operators in new and revamped sites.”

Jonathan Leinster, Head of UBS European Leisure Research, commented: “Trading across the sector appears to have worsened, after a strong December. JD Wetherspoon is the only operator to have yet commented on February trading, and we note that its management pointed to weekly volatility throughout the period, so a weaker February does not necessarily mark a new trend.

“Concerns over UK consumer spending are not new, but are likely to linger given the weakness reported today. We do believe however that despite rising unemployment, consumers are still happy to allocate discretionary spend to eating and drinking out. The latest UBS UK household cash flow published in November indicates that cashflow pre-savings should rise 1.6% in the current year, a significant improvement on 2011. We maintain ‘buy’ ratings on JD Wetherspoon, Marston’s and Greene King.