Pub groups M&B and Fuller’s warn on prospects as costs rise

Two of the UK’s leading pub operators have warned that high inflation and the cost of living crisis are likely to hurt their businesses for the long term.

Mitchells & Butlers, the UK’s largest listed pub group, said on Thursday that cost pressures presented a “major challenge” to the business and the wider hospitality sector. It said utility, labour and food costs would “persist at or above current levels well into the next financial year, increasing and prolonging the medium-term impact on margins”.

M&B, which operates almost 1,500 pubs nationwide, reported a 0.9 per cent increase in like-for-like sales in the 13 weeks to July 16. Drink sales were down 1.3 per cent over the period.

M&B’s chief executive Phil Urban said inflationary costs were “squeezing consumer discretionary spending”.

The first five weeks of the quarter started strongly but trading fell back later on in the period in part because of disruption due to strike action by transport unions and the recent heatwave, the company said.

Fuller’s, which operates 385 sites concentrated in London and the south-east, struck a similar cautionary note. Chief executive Simon Emeny warned that “industry-wide inflationary cost pressures” around food supply, labour and energy were showing “little signs of abating”.

The warning from Fuller’s came despite an improvement in trading. In the 16 weeks to July 16, Fuller’s total sales were up 3 per cent on 2019 levels. Like-for-like sales were up 27 per cent on the same period last year, during which the pub industry was still subject to Covid-19 capacity limits.

“Hospitality continues to bear the brunt of many challenging external factors, but we remain confident that Fuller’s is well placed to continue to prosper,” Emeny said.

M&B’s share price was down 3.8 per cent to 166.1p in early morning trading in London.

M&B in May forecast cost increases of about 6 per cent for the next financial year, but Greg Johnson, a leisure equity analyst at Shore Capital, said the latest trading update suggested costs would rise more than originally expected.

“Cost increases will likely be higher than what was budgeted for and it’s difficult to see in the current environment how demand and higher pricing will offset that,” he said.

He added that the “real test” for pub groups would come over winter as “the squeeze on the consumer tightens” because of energy price increases planned for October.