John Hattersley (pictured above), chairman of the CAMRA Members Investment Club, takes a look at the current business uncertainty in the pub sector.

Recent results and commentaries from quoted companies operating in the UK brewing and leisure sector have shared common characteristics when it comes to reviewing the industry background. Although results clearly vary from company to company they nearly all refer to a disappointing economic backdrop and an uncertain short term future.

It is well known that younger drinkers ( often described as the millennial generation ) aged between 23-38 are drinking less alcohol than their parents and not using the pub as often as their preferred meeting place but are tending to choose more locally produced beers and those perceived to be a higher quality. This trend is reflected in company statements as more highlight their widening beer portfolios or reiterate their commitment to quality cask beers. The Young’s announcement was a good example of this.

Those businesses that have developed the catering side of their trade are also facing these sort of challenges. Mitchell and Butlers, for instance, specifically stated that customers are prepared to pay more for quality and, as a consequence, they are restyling their menus and introducing localised pricing based upon the requirements of each site.

They also said that to a degree this change in emphasis was a reaction to a persistent rise in cost pressures. Whitbread and Thwaites also cited inflation as a problem for them. As readers of What’s Brewing will be aware there is a continuing debate about the effect of business rates on beer retailing but other costs such as rising energy bills and higher staff wages have also been highlighted.

Companies who offer accommodation have noticed a tail off in room demand over the last six months or so. Most believe that the Brexit uncertainty has negatively impacted business confidence and has led to weakening corporate demand especially outside London and South East England.

How are companies responding to these headwinds? At one level the pub operators continue to sell their poorer quality properties to recycle the proceeds into those they perceive to have better prospects. Even whilst adding to their estates companies continue to trade away some pubs such as Young’s and JD Wetherspoon.

This policy is not just confined to the larger companies as demonstrated by Wadworth marketing 24 pubs at the moment. The oversupply in the casual dining market, which has resulted in a number of casualties, such as Jamie’s Italian or Byron Burgers, is causing survivors to juggle their menus and target more actively customers which seem to be more seasonal, event and weather driven. This increased sophistication manifests itself in an approach which is being widely adopted now which can be described as “seeking out small advances at site level which will ultimately drive benefits in aggregate” : jargon for getting the little things right.

At a time when fourteen pubs a week are still closing ( there are now more active churches in England and Wales than there are pubs ) it is to be hoped that these initiatives are successful.

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