The Tokenhouse pub in the City of London is buzzing with office workers relaxing with after-work pints on an early Thursday evening, now the busiest night of the week.
“We still haven’t got Mondays and Fridays back,” admits Benjamin Relph, who manages the pub owned by Fuller, Smith & Turner, nodding to how many of its clientele now work from home on those days. But he is hopeful that the Uefa European football championship, which begins on Friday, will provide a boost, encouraging customers to arrive earlier and stay longer while watching matches on the Tokenhouse’s seven large screens.
Meanwhile, footfall has recovered to pre-pandemic levels between Tuesdays and Thursdays as more people return to the office. “By the end of this year, we’ll be much more comfortable with how City pubs are performing,” Relph added.
Relief cannot come soon enough. The pub sector has endured a difficult time over the past four years, emerging from Covid-19 lockdowns into a period of surging inflation, labour shortages and a cost of living crisis that has put a squeeze on punters.
Many of those headwinds are now easing to some degree, with events such as the Euro championship and Paris Olympics also expected to provide a boost.
But the overall picture remains strained with the number of pubs reducing each year. More than 1,200 shut their doors for the last time in 2023, according to the Campaign for Real Ale, equivalent to 3 per cent of the overall 46,500 pubs currently trading.
Yet many of the bigger, stronger groups are taking advantage of the tough environment to do deals, scooping up portfolios either from smaller operators or pockets of outlets from rivals.
Admiral Taverns, which runs 1,400 pubs and is owned by real estate private equity group Proprium Capital Partners, will acquire 37 Fuller’s pubs this month for £18.3mn. It is also spending £28mn on refurbishments in the coming year.
“We think there were a number of bidders involved and it was competitive,” said Chris Jowsey, chief executive of Admiral. “There is certainly a growing sense of optimism [after] growth has been hampered over the last few years.”
Punch Pubs said in April it had acquired 24 pubs from the Milton Three pub group, which fell into administration in November, in a deal believed to be worth about £15mn. Meanwhile, Mitchells & Butlers announced last month the acquisition of Italian restaurant chain Pesto Restaurants, which has 10 outlets, for up to £15mn.
There are predictions of more deals ahead. Saxon Moseley, head of leisure and hospitality at RSM UK, said the environment “presents an opportunity for well-funded larger operators to go out and acquire sites, maybe at a discount”.
One senior industry executive said he expects “the sector will probably do consolidation between some of the big block companies” should interest rates come down, as anticipated, in the next couple of years.
Others are refurbishing their sites, adding an outdoor space or expanding seating areas, to attract new guests and tempt regulars to come more frequently.
Heineken plans to pour about £40mn annually into refurbishing its 2,400-strong estate, which operates under the Star Pubs and Bars arm, while Greene King will invest £40mn in a new brewery in Bury St Edmunds to replace an existing facility there by 2027.
Fuller’s, which this week unveiled a more than 60 per cent rise in full-year pre-tax profits to £20.5mn, plans to invest £30mn in its properties during the current fiscal year after spending £27mn the year before.
JD Wetherspoon increased its capital expenditure on new and existing pubs by a quarter to £44mn in its latest half-year as it adds gardens and extra space. The group said in May that sales continued their “steady recovery from the pandemic” with annual profits expected to be towards “the top of market expectations”.
Pub chains are “becoming more bullish in investments, as they are much more confident on what they see for margins”, said Roberta Ciaccia, an analyst at Investec. Wetherspoons’s half-year operating margin, for example, was 6.8 per cent, up from 4.1 per cent a year earlier.
But even Wetherspoons is being ruthless in disposing of underperforming sites. It sold or closed 13 pubs in the six months to January while only opening two others, reducing its estate from 825 to 814.
“Pub companies are also regaining confidence through restructuring and estate rationalisation to create leaner, more profitable portfolios,” said Maggie Davis from food and drink research firm Lumina Intelligence.
The picture on costs remains mixed. Companies say energy costs have been abating while food price inflation, which hit a peak of 23 per cent in December 2022 and hovered around 20 per cent for much of last year, has pulled back significantly. It stood at 6.7 per cent in April, according to the Foodservice Price Index report prepared by Prestige Purchasing and CGA.
However, labour costs are higher following the almost 10 per cent increase in the National Living Wage in April. “I think [the increase] is much larger than it needed to be,” said Simon Emeny, Fuller’s chief executive, although he said it was not a big concern.
Indeed, increased wages are in some ways a positive thing for pubs, argued David McDowall, the chief executive of Stonegate — the UK’s biggest pub group, which owns brands such as the Slug and Lettuce.
“The positive that we can take from the recent national living wage increase is a little more money in our guests’ pockets,” he said.
Throughout last year, both “wet” pubs — in which drinking is the main point — and restaurant pubs have had year-on-year monthly sales increases that mostly surpassed hospitality groups, including restaurants and bars, according to the CGA RSM Hospitality Business Tracker.
The segments had 7.9 per cent and 6.2 per cent growth, respectively, in March, compared with 5.2 per cent for the hospitality sector overall — although the figures all turned negative in April due to rainy weather throughout the UK. What is driving sales are pubs in suburban and residential areas, companies say.
For now — and with UK drinkers predicted to spend an extra £94mn during the Euro 2024 tournament, according to the British Beer and Pub Association — there is some sense the sector has turned a corner.
“There’s still a real appetite among the British public to go to the pub,” said Jowsey. “The challenge in our sector is to translate that revenue into profit, because the cost of doing business is still pretty high.”