Restaurant operating costs now at an all-time high of 51.5%

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Restaurants are facing unprecedented financial pressure after it was revealed yesterday that operating costs in the sector have passed 50% for the first time.

The increase in the level of operating costs and tighter margins could be linked to the 2016 EU referendum, according to the latest Benchmarking Report from ALMR Christie & Co.

Operating costs across all trading styles now stand at 51.5% of turnover, with growth across the entire survey at 1.1%.

The survey asked respondents for percentage changes in like-for-like turnover. On average, a 1.1% rise in turnover was reported in the year, continuing the gradual slowing in growth rates seen in the past three years.

Food-led outlets reported subdued growth in the year with like-for-like sales growth falling for the third consecutive year. Gross profit margins on food sales have reached a new high of 63.8%, a 0.7ppts increase from the previous high of 63.1% in 2014.

Within the casual dining segment margins on both wet and food sales have contracted with margins falling, by 9.2ppts and 6.1ppts respectively, as a combination of competitive trading environment, increased outlets, currency valuation and the increased sample size.

For the first time the report has included a confidence survey which highlights that there is confidence within the sector, particularly trading prospects for 2017 in both anticipated like-for-like turnover growth and anticipated profitability. The majority of respondents felt Brexit would have little impact to their business in 2017.

While the report has an overall positivity, Kate Nicholls, chief executive at ALMR believes the current state is fragile. Speaking about the Benchmarking Report at the launch yesterday, Nicholls said: “What it shows is that positivity can’t be taken for granted. I would say it’s a snapshot of an industry about to hit cost headwinds.”

Nicholls added: “Employers are looking at the political instability and uncertainty caused by Brexit and the possibility of significant cost increases, as wages rise and rates reliefs expire. There is a risk that additional costs could hit at a time of great instability hitting eating and drinking out businesses that are crucial to the UK economy and have helped restore prosperity to our town and city centres.

“Venues are responding to challenges by adapting and providing customers with new and exciting experiences. It should be remembered though, that this growth could be undermined if the Government does not provide adequate support for businesses and fails to bring about the stability and access to labour that employers are going to need.”

Neil Morgan, managing director of pubs and restaurants at Christie & Co, added: “Despite the well-documented decline in pub numbers over the past three decades we are seeing a more lean and competitive sector emerging as operators diversify and respond to the continuing evolution of the UK consumer landscape.

“There is clearly confidence in the sector, highlighted by the report’s confidence survey and increasing levels of capital expenditure, however there are a number of political and economic pressures which could threaten some operators, all exacerbated by the uncertainty surrounding the Brexit negotiations.

“What is clear is that operators must prepare for both the challenges and opportunities; therefore the need for effective business planning is more essential than ever if operators are to not merely weather the storm but seek to thrive in the long term.”

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