January 19, 2014 1:29 pm

Pub groups start the year on a frothy note

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Inside All Bar One Bar©Bloomberg

Consumption volumes rose 1 per cent between 2010-12 after falling 8 per cent in the previous two years

Christmas was a good time to be a pub owner. A midweek Christmas and New Year’s eve gave many in the UK a near-two week holiday, with little else to do but eat and drink.

The results of Greene King, which owns 2,200 pubs, and its smaller rival Spirit, which has 1,200 pubs, duly bore this out, with both groups posting solid growth last week.

Similarly strong results are expected from Marston’s and JD Wetherspoon when they report this week. They will be followed by Mitchells & Butlers and Enterprise Inns, which report on January 30 and February 6, respectively.

All four are expected to kick off 2014 with like-for-like growth – which is not always the case in a sector that has been buffeted by huge debts, changing drinking habits and higher taxes in recent years.

Analysts at Numis expect that Marston’s will enjoy sales growth of about 3.5 per cent in its “premium” managed estate, when it reports on Tuesday. JD Wetherspoon will post on Wednesday like-for-like sales growth of about 3 per cent, according to Deutsche Bank.

Even Mitchells & Butlers – which has had a tumultuous recent history, involving warring shareholders and a revolving cast of chief executives – is expected to post like-for-like growth of 2 per cent when it reports the following week, according to Deutsche.

Although consumer spending loosened over the festive period, it was in general tight throughout 2013 and is expected to remain erratic throughout 2014. “It’s not easy out there, as you have seen from some retailers,” says Mike Tye, chief executive of Spirit.

Customers are opting to go out less, but often spend more – buying fancier beer, or a slightly more expensive bottle of wine – when they do. “Customers are prepared to reward themselves,” says Rooney Anand, chief executive of Greene King.

Mr Anand says these changing spending habits mean pub groups must adapt to attract punters on the fewer occasions they do head out.

Regulatory uncertainty also looms over the sector. The Department for Business, Innovation & Skills will launch its long-awaited – and much delayed – report into the relationship between big pub groups and their tenants later this year.

Some industry figures are optimistic that it will be less tough on the sector than many had feared. But change in the tenanted market is coming regardless of the department’s proposals.

The old leased model, with fixed rent and selling [tenants] beer is not a very future-proof model when beer sales are inevitably going to go backwards until they plateau

- Mike Tye, Spirit CEO

“The old leased model, with fixed rent and selling [tenants] beer is not a very future-proof model when beer sales are inevitably going to go backwards until they plateau,” says Mr Tye of Spirit.

Enterprise Inns, the largest tenanted operator in the UK with 5,500 pubs, has experimented with a more hands-on relationship with some of its tenants, helping tenants with day-to-day operations rather than just collecting rent and selling beer.

Enterprise is expected to post like-for-like growth of 0.5 per cent – compared with a 4.4 per cent drop in the same period last year – when it reports at the start of February, according to Deutsche.

There are some tailwinds for the industry. Food cost inflation will continue to slow in 2014, say analysts at Panmure Gordon. This is good news for low-cost operators such as JD Wetherspoon, which reports on Wednesday, and has had trouble maintaining its margin in recent years.

But another factor could help or hinder pubs: the weather. Although regularly used as an excuse by the chief executives of consumer-facing companies, weather does affect the performance of the pub sector, say analysts. “Last year, the weather was a genuine negative for all pub groups,” says Geof Collyer, analyst at Deutsche.

The bitterly cold winter of 2013, which bled into late spring, knocked sales across the entire industry, giving pubs some soft comparisons to grow against – especially if the sun shines.

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