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Sales are booming in Britain’s pubs, but soaring costs are drinking up profits

Despite the uncertainty, pubs are still managing to attract plenty of customers, but the growth isn’t being felt as much at the bottom line, with margins being squeezed by soaring costs
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All of the UK’s listed pub companies have reported a rise in sales recently

Clouds of uncertainty may be hanging ominously above, but Brits aren’t letting that stop them from enjoying a pint or six with friends.

A raft of consumer sentiment measures has warned that people in the UK are cutting back on spending as they await some sort of outcome over Brexit.

READ: City Pub Group reports 35% jump in sales so far in 2019

But the issues seem to be affecting big-ticket items in the main – things such as cars, furniture and houses. By contrast, Britain’s pubs are proving resilient.

City broker finnCap agrees, telling its clients that pubs are enjoying “relatively robust trading” despite the concerns.

City Pub Group PLC (LON:CPC) was the latest to tell the market about booming sales Monday morning.

In a statement ahead of its annual general meeting, boss Clive Watson – of Made in Chelsea fame – said sales were up by more than a third so far in 2019.

Little detail was given, but much of that growth is likely to have come from new openings, with City Pub trading from five more sites compared to this time last year.

As a sign of the firm’s belief in the pub market, another five are due to open shortly, including the flagship Aragon House in London. Within two years, the target is for that figure to have reached between 65 and 70.

Sales on the up

City Pub isn’t the only pub company enjoying soaring sales.

No-frills chain JD Wetherspoon PLC (LON:JDW) recently said its like-for-like sales are up 6.8% so far in its financial year, while rival Greene King PLC (LON:GNK) said its like-for-likes were up 2.9% last year. Another pub group, Marston’s plc (LON:MARS) reported a 5% rise in half-year sales earlier this month.

Although last year’s ‘Beast from the East’ might have inflated this year’s result a little, it seems UK pubs aren’t struggling to get punters through their doors.

But costs soaring too...

Making more money out of them is proving a little harder though.

The whole sector has had to deal with soaring costs in recent years: wages have jumped, as have business rates, food and drink costs and other bills.

That has squeezed margins, with most companies reluctant to pass all of their costs on at a time when consumer confidence is, if not broken, a little unsteady.

‘Spoons warned a few months ago that its profits would be lower than expected this year after it was forced to up its staff’s wages, while Greene King is guiding for a £20mln surge in its expenses, despite finding ways to cut its costs elsewhere.

Still, it expects profits will rise slightly this year, as does Marston’s after its pre-tax profits edged 2% higher in its opening six months.

Even Wetherspoon, with its surging like-for-likes, has the potential to spring a surprise and revise its guidance, and the market was a tad disappointed when it opted not to recently.

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