Inside All Bar One Bar Ahead Of Results...An employee carries glasses of Peroni, left, and Amstel beer, on a tray at an All Bar One bar operated by Mitchells & Butlers Plc in London, U.K., on Tuesday, May 17, 2011. Food and alcohol sales rose an annual 2.1 percent in April, boosted by alcoholic drinks including champagne. Photographer: Chris Ratcliffe/Bloomberg
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Mitchells & Butlers, the pub and restaurant operator, has reported a 25 per cent fall in pre-tax profit in the past year as it has battled increased competition for dining customers and rising cost pressures.

On Tuesday, M&B said a wave of restaurant openings across the industry had put pressure on its own outlets. It estimated that 1,700 rival eateries began trading in the year to June 2015, roughly equivalent to the size of its own pub estate. It said this new competition hit its mid-market brands, such as Harvester, in particular, as many new restaurants were trading near to its sites. 

M&B, which counts Toby Carvery, Harvester and All Bar One among its brands, had also warned in September that its profit margin would be hit by increased investment and a rise in the minimum wage, saying that higher labour costs would continue to cause “headwinds”.

Partly as a result, group pre-tax profit fell a quarter to £94m in the year to September 24, as revenues declined 0.7 per cent to £2.1bn.

However, much of this fall was because of downward property revaluations. Stripping out these one-off impairment charges, operating profit fell only 3 per cent to £318m.

A final dividend of 5p per share was proposed — unchanged on the previous year. In early Tuesday trading, M&B’s shares were down 1.8 per cent at 268.6p.

Since the year end, however, trading has picked up. M&B said like-for-like sales were up 0.5 per cent in the past two months, it was now outperforming the wider market.

It also forecast that it would begin winning back market share as the number of net new restaurant openings was now flat. 

“Overall, we’re pleased, but it’s been a game of two halves,” said Phil Urban, chief executive. “The first half of the year was mainly down to [excess] supply in the sector. We’d allowed our estate to get tired, and we paid the price. It takes a while for investment to come through, but we’re starting to see an improving trend now.”

Even so, the company said it expected its margins to remain under pressure this financial year as it grapples with the impact of a business rates revaluation and the higher minimum wage.

It would face cost pressures as a result of the weaker pound following Britain’s vote to leave the EU in June.

M&B plans to raise its investment in the premium sector of the market to tap into the trends for upmarket food and drink.

“The premium market is where we would expect to see the strongest growth, and these spaces offer a form of long-term mitigation towards cost inflation,” said Mr Urban. 

“We’re overexposed in the mid-market,” he added. “Where we convert a Harvester to a Miller and Carter, our average spend per head increases from £8.50 to £17, and overnight we fix a spend problem.”

Shares in M&B have fallen about 20 per cent in the past year, following a string of disappointing trading updates.

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