Pubs & Restaurants – A slower market:

May 20 2016

Note, a lot’s priced in. The sector is cheap. Some PERs are single digit & yields are near 5%.

Recent data:

  • It’s fast becoming official; the market is tougher.
  • Peach Tracker for March & April (smoothing Easter) suggests LfL sales down c0.2%
  • Marston’s yesterday alluded to tougher H2 comps (starting April)
  • M&B today said that Q2 sales were down around 2.8%
  • Restaurant Group has said a lot of things, few of them good.

The very near term:

  • The weather can be ‘noisy’ in the shoulder seasons, spring & autumn
  • Sun versus rain makes a major difference
  • The April Tracker favoured restaurants, beer gardens weren’t full

Underlying trends, grounds for optimism:

  • Wages: Real wages are rising. Costs are benign & employment levels are high
  • Brexit: This should be a side issue but uncertainty impacts confidence & spending patterns
  • NLW: This will raise labour costs, it’s a major headwind
  • NLW continued: But prices may rise a touch & cash should be recycled. An extra tenner in wage packets is more likely to be spent in the pub than it is on a new house, car or holiday

The old truisms remain true (of course):

  • Price rises have to be earned. Innovation is necessary. Incumbents must battle new entrants and remain relevant, they cannot coast.
  • Consumers eschew gimmicks. Vouchers are best avoided. Price-gouging is a no-no.
  • But for operators selling products that customers want at a price they are willing to pay, the outlook remains relatively positive.