​Who’s Winning the High Street Gastro Pub War?

Zak Goldberg  |

While it’s widely accepted that the food and drink market in the UK will be adversely effected in the event of a no deal Brexit, the leading players in this sector will always benefit from sustained demand.

Brands in this space are also benefitting by partnering with environmental service providers. This type of business is enabling pubs to increase efficiency and reduce their costs, which can make a significant difference during times of economic uncertainty.

The longevity of this market was recently borne out in the Stone & River Brand Momentum Report, which highlighted JD Wetherspoon and Mitchells & Butlers as being among the most in-demand brands in the current marketplace.

This also highlights the highly competitive nature of the gastro pub sector in the UK, which includes a number of prominent brands vying for dominance on the high street. We’ve picked out three of the most interesting below, appraising their recent performance and prospects for the future.

  • JD Wetherspoon
  • Mitchells & Butlers
  • Marstons PLC
  • While JP Wetherspoon may be one of the most popular and affordable gastro pub brands, their recent share price has nose-dived and sunk to £10.90 at the end of last week.

    This is largely the result of the brand’s low-margin business model, which is being squeezed by rising cost pressures and an uncertain economic climate. Increased labour costs are likely to be particularly impactful, especially as Wetherspoon operates as a pub manager rather than a tenanted estate owner.

    With consumer confidence falling against the backdrop of Brexit, Wetherspoon may also see demand fall slightly in the upcoming financial quarters. This will further eat into the brand’s earnings for the foreseeable future, while compromising its underlying model and causing a period of transition for the business.

    Analysts have also warned that the brand’s recent earnings forecasts have failed to fully appreciate these challenges, and this is something that investors should be wary of in the New Year.

    Next up in Mitchells & Butlers, which arguably sits at the heart of the gastro pub sector in the UK.

    Despite this, the brand is also braced for a challenging period during the next two financial quarters at least, with spiralling food, drink and salary costs hampering performance on a considerable scale.

    Ultimately, the brand saw its operating profits slip from £308 million to £303 million during the six months through September 29th, while revenues of £2.15 billion during the same period were also extremely lacklustre.

    This underwhelming performance is reflected by the brand’s share price, which fell slightly from £2.73 on November 29th to £2.54 at the end of last week. As a result of this, the company has taken the controversial step of axing dividends in order to plough more invest into its estate and individual outlets.

    There’s clearly a trend emerging here, with prominent gastro brands struggling to maintain their growth and share values in a tough economic climate.

    One brand to buck this trend is Marstons PLC, which held its dividend steady at 4.8 pence per share and achieved a marginal profit increase of 3.9% (to £104 million).

    Although pre-tax profit in the year ending September fell to £54.3 million, this included the revaluation impact and did not offer an accurate insight into performance.

    Overall, revenue grew by 15% during the last 12 months and like-for-like sales increased by 0.6%, and there’s little doubt that it performed well in an increasingly strained and challenging marketplace.

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    The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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