Lies, damned lies and statistics ... Part 2

“Annual income twenty pounds, annual expenditure nineteen six, result happiness.

 
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

Charles Dickens, in his 1849 novel David Copperfield, provides us all with an apt Profit and Loss Statement, income and expenditure recorded and the result analysed.

Your pub business is like any other it will make a profit or a loss depending on two factors – income and expenditure.

I have provided many examples on this website on how to improve sales and control costs (and many others will provide similar information) but for many pub businesses knowing what targets you should aim for in cost control is less clear.

On July 4^th 2011 the Association of Licensed Multiple Retailers (ALMR) announced the publishing of its annual Benchmark Survey Report in which it details its findings on such things as sales, costs, capital expenditure etc amongst its members. The survey taken in October 2010 coincides quite nicely with a report from a well known licensed trade accountancy firm.

Between them they provide an insight into what pubs in certain sectors are achieving in terms of profitability based on the profit and loss information on a virtually identical number of sites so comparisons (whilst usually odious) should be valid.

The ALMR report suggests that the average cost of running a pub (out of the 699 pubs surveyed) is 47.1% of annual turnover in freeholds and 44.9% in tenancies and leasehold pubs (excluding rent and cost of sales). Add the 11.4% of turnover that represents rent and this means non-freehold pubs have to give over 55% of their turnover to running the pub (although this includes a figure of 7.2% for tenant’s drawings), which nets out to 47.8%.

The accountancy firm gives the following analysis of some 701 pubs (no detail is given of whether they are tied or free of tie) for three levels of trading, under £3,000 per week, £3,000 to £5,999 per week and those over £6,000 per week. Average cost of running these pubs is 46.8%, including rent at 9.22%.

Analysing their results using an average of all their averages (i.e. different levels of turnovers etc) the results would appear quite encouraging:

Detail	weekly		Annual		% of sales
Wet	£     4,219		£219,388		70.16%
Dry	£     1,319		£  68,605		21.94%
Accommodation	£        475		£  24,700		7.90%
Total	£     6,013		£312,693
Cost Wet Sales	£     1,715		£  89,162
Cost Dry Sales	£        535		£  27,812
Total Costs of Sales	£     2,249		£116,974
Gross Margin					Gross Margin %
GP Wet	£     2,504		£130,226		59.36%
GP Dry	£        784		£  40,794		59.46%
Total Margin	£     3,289		£171,019		59.38%
Gross Profit	£     3,764		£195,719		62.59%
Overheads					% of t/over
Rent	£        620		£  32,245		10.31%
Electric	£        123		£    6,420		2.05%
Gas	£         87		£    4,513		1.44%
Wages	£     1,051		£  54,667		17.48%
Other	£     1,219		£  63,404		20.28%
Total overhead	£     3,101		£161,248		51.57%
Profit/Loss	£        663		£  34,472		11.02%

Assuming that the draught/bottled beers represent 70% of wet sales and an average price per pint of £2.70 this would be a MAT (Moving Annualised Total) barrelage of approximately 197.5.

Making the same assumptions as above the cost to tenant of a barrel of beer would be £338.60 or £206.92 for an 11 gallon keg.

Does any of this sound realistic, in terms of tied tenancies and leases? Is it really possible to make over £34,000 profit from a 200 barrel pub?

The answer is yes if the divisible profit is equitably split – the landlord charging rent at 10% and selling beer to tenants at £338 a barrel. This would mean somewhere in the region of £100 per barrel discount earned by the landlord being passed on to the tenant.

Yes, that is, if you also accept the premise that the provision of accommodation is akin to “getting money in for changing some sheets”. If this income is treated as “cost free” in these accounts then it accounts for 72% of the net profit of the business. For those pubs not able to provide this service it means net profit would be reduced to £9,772.

Put in the real price of beer, as evinced by contributors to the Publican’s Morning Advertiser forum, that beer is nearer £256 for a 22 gallon, this means the averaqe of all average pubs from these samples of the trade universe are making a loss of £6,735 a year … I bet that rings true!

Whilst these “benchmarks” may be of use in setting targets or as comparitors for your business you must remember that your business is unique and the trick is to closely examine all areas of income (to maximise them) and all areas of expenditure (to minimise them) in order to make the greatest profit from your endeavour.

Don't teach my grandmother how to suck eggs ....

Jonathan Downey managing director of The Rushmore Group, a collection of urban bars in London and other major cities, was asked by ALMR chief executive Nick Bish to speak at its autumn debate last week and propose the motion ‘It’s last orders for the British Pub’.

Apparently he thinks that the only ground-breaking advance in the pub industry was the introduction of Sky in 1989, whilst changes to society and improvements in living conditions have elicited no response from the on-trade. Utter bunkum.

He said: “Whilst clearly no one really believes the pub is on its last legs, the industry is under attack from all sides and the message here is clear — as an industry, we first need to accept that there is a lot we should be doing for ourselves if we are to have any hope of making some of the essential changes needed to maintain a thriving business.”

If you want to read more of his self-satisfied rambllings see:

http://www.morningadvertiser.co.uk/news.ma/save-comment/88555

So tell us something new Mr Downey ... despite the best efforts of individual licensees who have and still provide(d) comfortable, safe, value for money pubs, many have continued to fall by the wayside, bludgeoned down by crippling rents and taxes, beset by cheap supermarket sales and bound up in a death shroud of red tape ... grandma used to say " there's no such thing as a bad  pub, only a bad publican" and that a "pub is just four walls, it's what you do with it that counts" ... she would, however, be quite literally spinning in her grave (if she hadn't been cremated) to see what is happening to her beloved trade (of over 60 years) ... perhaps you have found a lucrative niche of well-heeled customers for your outlets (whatever "urban bars") are... not all licensees share your good fortune.

It is facile and patronising in the extreme to suggest that the ills that have befallen this industry stem from an inability to change ... my grandmother regaled us of times long gone by when the rise of the Kinemas and the Wireless were innovations (in a time when there were very few restaurants and most pubs served little more than curled up sarnies and pickled eggs) ... the British publican is by and large an extremely adaptable and industrious entrepreneur ... but faced with overwhelming odds not technological advancement s/he is struggling to survive the perfect storm that pubco's, supermarkets and HMG have brewed up.