The report, ‘Business Outlook 2019: Navigate, Innovate, Accelerate,’ reflects on the themes, activity and challenges of the previous year and forecasts what 2019 might bring across the industries in which Christie & Co operates, including the pub sector.
The number of UK pubs has declined by around 28% since 1989, and the report estimates a further 1,000 pubs need to close within the next two years to reach a sustainable equilibrium of 47,000 pubs. However, more people are employed in the sector than ever before and the value of the UK pub to the national economy has increased as a result; today’s pubs have not only absorbed the trade from those that closed but have also generated new business. These successful pubs and bars are leading the sector, attracting private equity and a wider range of hospitality operators, as reflected in Christie & Co’s transactional activity throughout 2018. Christie & Co reports movement in average prices up 2.7% on the previous year and predicts that 2019 will generate modest opportunity for value growth, driven by trading performance.
Rising operational costs continue to challenge the sector, with average overheads now averaging 52.5% of net revenue, up 3% in two years. The report identifies wage cost inflation and property costs as key cost pressures for the sector and predicts further margin erosion through to 2020, with limited opportunity to pass costs on to the customer.
The report also considers certain challenges posed by the terms of the Brexit deal. EU nationals composed 40% of the UK’s hospitality workforce as of June 2018, as reported by leading software platform, Fourth Analytics. Christie & Co notes that the Brexit referendum has dampened the influx of foreign labour into the UK and encouraged some migrants to return home, two factors likely to increasingly compound existing staff recruitment and retention challenges.
However, the report highlights opportunistic avenues for operators to differentiate themselves from the competition and navigate obstacles, including the introduction of lettings rooms, mitigating costs by buying British goods and embracing emerging consumer trends to maximise their relevance to the customer.
Neil Morgan, Managing Director – Pubs & Restaurants at Christie & Co comments, “As a result of the decline in pub numbers, improved trading performance and increased average prices, interest is expected to remain strong and investors can look forward to increased opportunity in the pub sector. As highlighted in the 2018 UKHospitality Christie & Co Benchmarking Report, freehold ownership remains a long-term aspiration for many operators, and we can look forward to strong performance across the sector in 2019, especially within the private pub market.”
The full Business Outlook 2019 report will be available on the Christie & Co website from 17.00 here.