INDUSTRY ANALYSIS: What sort of state is the UK pub sector really in?

Pub supply is now broadly balanced with good demand – with the rate of pub closures having stabilised to nearly nil despite negative publicity to the contrary – according to Christie & Co. 

Simon Chaplin, head of pubs and restaurants at the firm, said it has continued to see confidence manifest in investment, as established operators from industry stalwarts, such as Marston’s, McMullen & Sons and Everards continue to build new pubs.

With operational pressures having increased, it is these purpose-built, efficient-to-operate units that many of the bigger players consider to be the future of the sector, he said.

“At the other end of the market, the private free house segment has continued to bounce back, with some return in lifestyle buyers. Growth aspirations amongst the most successful of these smaller operators has seen the number of multiple operators grow, many of whom continue to drive demand from a transactional perspective through their thirst for expansion.”

Private equity and investor interest remains strong, with those familiar with the sector able to differentiate between the well-publicised challenges faced by the restaurant sector and a vastly more structurally resilient pub sector.

Generally speaking, top lines have continued to perform well, which has allowed leading operators to hold bottom-line profitability flat or even make marginal gains on a like-for-like basis.

Outside of this, many operators have invested in expansion and improving their estates, meaning that year-on-year performance is significantly ahead of like-for-likes.

Mr Chaplin said a big slice of that investment is being directed towards letting rooms, in which interest remains strong.

“Demand for the best sites is outstripping supply, leading to higher multiples on this high margin income stream. New and established operators alike are now looking at their own estates to identify development opportunities.
A number of businesses are operating defensively and looking to hold margins flat through the remainder of 2018.
The most successful are targeting marginal EBITDA growth, which combined with some movement in multiples could result in an increase in asset prices of between 4% and 8% for the year.”

He said this growth is anticipated across the regions, driven by expanding multiple operators.

“The focus for many of these fast-growing businesses will remain on the talent agenda, namely recruiting and retaining the right talent to sustain their growth, and in doing so build a culture that allows their businesses to thrive in the market. As we move into 2019, eyes will be focused on the National Living Wage’s April 2019 uplift and the still incredibly uncertain impact of Brexit, although long term prospects for 2020 and beyond are currently very positive.”

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