Harvester owner warns rising costs will dent UK hospitality sector

Pub group Mitchells & Butlers says suburban venues are faring best as rising bills and wages squeeze profit

Last modified on Thu 25 Nov 2021 05.10 EST

The pub and restaurant group Mitchells & Butlers has warned that rising costs, particularly higher energy bills and increased staff wages, will hurt the hospitality sector, just as businesses return to profit after pandemic restrictions eased.

The company, which owns pub chains including O’Neill’s and restaurant brands such as Harvester, said Brexit was still “an important event for the market” and had created risks for the sector, most notably around the supply and cost of products and workforce shortages.

Mitchells & Butlers – which also runs All Bar One, Toby Carvery and Miller & Carter – said customers began to return to its 1,600 UK venues when lockdown restrictions were relaxed in the spring. Its sales bounced back in August and September and it is now receiving bookings for Christmas parties.

Announcing its annual results, the group said its suburban locations were trading better than those in city centres, as continued home working meant people visited their local rather than a branch near their workplace. Footfall in major cities has been slowly increasing in recent months, a trend the company expects to continue.

Pub and restaurant goers want to socialise with others in a way they cannot at home following pandemic restrictions, the group said, as it reported a pre-tax loss of £42m for the year to 25 September, compared with £123m a year earlier.

Mitchells & Butlers said it had returned to profitability in recent months and its like-for-like sales were 2.7% higher than pre-Covid levels during the past eight weeks.

“We are seeing Christmas bookings coming in now, people are recognising they missed out last year and there is pent-up demand to celebrate this year,” Phil Urban, the company’s chief executive, told BBC Radio 4’s Today programme.

“I think it will inevitably be different, we won’t see so many of those big office parties, but we might see more smaller groups meeting in suburbia and maybe not so much in city centres”.

Mitchells & Butlers said it was working to offset the impact of rising costs, but warned they would have a residual impact on its performance in the current financial year.

Higher utility bills remain a concern for the company, while it will also have to pay its staff more from next April as they benefit from the rise in the “national living wage” to £9.50 an hour for workers aged 23 and over.

Amid rising costs, the company called for the government to extend the temporary reduction in the rate of VAT on food and sales of non-alcoholic drinks, which currently stands at 12.5% but is due to return to the pre-Covid 20% level next April.

The company said the temporary tax cut was worth £81m to the business during the year to September.

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