It was only a few years ago that pubs were being told they needed to start beefing up their food offering if they wanted to stay open for business.
A combination of the smoking ban and cut-price supermarket alcohol meant pubs were struggling to make much money out of beers and wines.
It left them with a decision: shut down or come up with new income streams.
An improved food menu was the solution for many and it seemed to be working; in 2010 the average UK landlord relied on meals for the majority of their turnover for the first time ever.
The rise of the gastropub coincided with a boom in the number of high street restaurant chains though, with thousands of Byrons, Prezzos, Carluccio’s and others popping up all over the place.
In fact, between 2014 and 2018, an estimated net 4,000 new restaurants opened up and down the UK.
That saturated the UK casual dining market, leaving customers with a wealth of options which has forced restaurants to cut their prices to try to entice people through the doors, while soaring costs have squeezed margins further.
Beer is back
The tricky restaurant industry means drink-focused (wet-led) pubs are now back on top. Their numbers are still falling, but the rate of decline has slowed significantly over the past year or so.
The unusually hot weather and England’s galvanising run at the World Cup last summer also helped to tip the balance back towards the humble watering hole, with the British Beer and Pub Association estimating that pubs sold an extra 40mln pints during England’s football matches alone.
Recent Coffer Peach Business Tracker data has showed that the trend towards drink-led sites has continued into 2019, aided by the recent heatwave over Easter.
In April, food like-for-like sales in pubs were up a modest 0.8%, while drink like-for-likes jumped almost 3%.
The data proves that the surge in drink sales last year was more than just a weather-inspired flash in the pan.
What consumer confidence crisis?
Liberum analysts said the numbers “show resilience across pub trading despite low consumer confidence”, a view echoed by JP Morgan.
According to its chin scratchers, pubs could prove to be a relatively “safe haven” for UK investors in an adverse Brexit situation.
In a note to clients, the JPMorgan analysts said the British pub remains “an enduring brand in the minds of consumers, and fundamentally pubs are fairly defensive in uncertain times”.
Drink sales drive M&B's growth
Fuller Smith & Turner PLC (LON:FSTA) and Young & Co's Brewing PLC (LON:YNGA) were the main beneficiaries of last summer’s heatwave, but of the flurry of recent results and updates, Mitchells & Butlers has perhaps been the stand-out performer.
Revenue rose 5% to £1.19bn in the six months ended 13 April (H1 18: £1.13bn), driven largely by strong like-for-like sales growth, while pre-tax profit surged by almost 9% to £75mln (H1 18: £69mln).
As you might have guessed, drinks sales were the biggest contributor to growth, even with the relatively easy comparatives for food given the effect of last year's 'Beast from the East'.
Ei Group PLC (LON:EIG) and Marston’s plc (LON:MARS) have both reported a slight rise in profit as well, and JD Wetherspoon PLC (LON:JDW) recently reported a whopping 8% rise in sales so far this year.
Not all sunshine and rainbows
While sales have been soaring, trying to get that to filter down to the bottom line has been more of a challenge, no matter how easy M&B might have made it look.
The entire sector has had to deal with higher utility bills, increased business rates and a spike in wages, all of which have put pressure on margins.
‘Spoons, for example, warned its profits would take a hit this year despite booming like-for-like sales after it was forced to hike staff pay.
Others have bemoaned surging costs as well. Even with various cost savings, M&B said in its recent half-year results that costs were £24mln higher compared to last year, while Young & Co’s Brewery PLC (LON:YNGA) endured a similar rise.
Marston’s also expects costs to rise by around £20mln this year, although it hopes to mitigate most of this by upping its prices and making more savings elsewhere in the business.
Better summer ahead for food-led pubs?
This summer is expected to be a much better one for food-led pubs, though, given last year’s relatively soft comparatives.
There’s no World Cup and the weather almost certainly won’t be as good as it was for as long as it was. Both of those things worked against the dining industry in 2018.
In theory, that will make it easier for pubs to increase food sales year-on-year. On the flip side, drink-led pubs will have to work extra hard to boost sales if the Great British weather can’t repeat its performance again this summer.
Another potential boon for food-led pubs is that restaurant numbers are finally starting to come down.
Mitchells & Butlers estimates that the number of restaurants in the UK fell by 1.1% in the year to March, the first fall in more than a decade.