City Pub Group Chair Clive Watson said the chain had to take rising costs on the chin.
(Picture: City Pub Group)Britain’s pubs sounded the alarm on profits today, as soaring prices and squeezed customers leave landlords with little choice but to shoulder higher costs.
The bosses of Marston’s, All Bar One-owner Mitchells & Butlers and City Pub Group all warned that costs were increasing rapidly as UK inflation hit a 40 year high.
Andrew Andrea, boss of pub operator Marston’s, said his business would take a £5 million hit from soaring electricity bills this year.
“We are not hedged for electricity which is hitting us by around £5 million,” he said.
The price of ingredients for meals at Marston’s 1500 UK pubs is also rising rapidly.
“Food costs are up around 7% and that has also impacted food supply,” Andrea said.
On top of this, an acute labour shortage is hitting the sector. Figures published yesterday show hospitality workers are in high demand, with pubs competing against supermarkets for staff. Pubs are upping wages in response.
City Pub Group chairman Clive Watson told the BBC Today programme: “Labour costs are up about 7-8%.”
Rising costs mean pubs are being forced to raise their prices.
Mitchells and Butlers CEO Phil Urban told the Standard it had introduced “modest” price increases. Andrea said Marston’s had put up prices by an average of 8%.
Official data published today shows food and drink prices rose 6.7% in April, the highest 12-month rise in over a decade. But that still lags the headline rate of 9%, the highest since 1982.
Watson said: “We’re trying not to put prices up because we’ve got to encourage customers to come back after the pandemic.”
“We are having to take a lot of these costs on the chin which affects our bottom line.”
Mitchells and Butlers expects its costs to rise by 11.5% in 2022.
Urban said: “We’re taking that view because it’s too early to call what the impact of the current inflation will have on customer propensity to eat out.”
Marston’s made operating profit just shy of £40 million in the six months to April 2022, while sales reached 97% of 2019 levels, despite a drop in footfall during the omicron coronavirus wave in December 2021.
Mitchells and Butlers, which also owns the Harvester chain, saw operating profit of £121 million in the sixth months to April, with sales growth of 1% over 2019.
In April, the government ended a temporary VAT cut for hospitality, pushing the rate back up from 12.5% to 20%.
Tim Martin, chair of pub chain JD Wetherspoon, today urged the government to reverse the VAT increase in a bid to combat inflation.
“The government’s decision to return VAT to 20 per cent in April has affected the entire hospitality industry and is a contributory factor in the rise in inflation,” he said.
“The government should reduce VAT from the current 20 per cent in the hospitality industry and as well as benefitting businesses and customers, it will, I believe help in lowering inflation in the months to come.”
