Is the UK pub and bar market on track for £8bn growth in 2022?

“There’s a plethora of difficult situations for pubs at the moment; penetration is down and spending is relatively flat,” says Katie Prowse, senior insight manager at Lumina Intelligence. “Consumers are also limiting their out-of-home visits, which is having an impact on pubs, on top of cost increases.”

Despite macroeconomic challenges circulating the industry, the UK pub and bar market is still set to value £22.5bn in 2022, representing 98% of the market’s 2019 value. According to the new Lumina Intelligence UK Pub and Bar Market Report 2022, a full year of unrestricted trading is expected to fuel growth of +£8bn this year.

A prime example of Lumina’s optimistic outlook is demonstrated by The City Pub Group (CPG) which unveiled a 194% surge in revenues in the first half of 2021 (H1) to £26.1m. “Coming through Covid has been seriously tough. Nevertheless, we’ve come through in really good shape,” says Clive Watson, chair of CPG. Pre-tax profits for the group also jumped 163% from a loss of -£2.2m to £1.2m year-on-year.

However, further growth prospects for the sector have been thwarted by changes in consumer behaviour amid the cost of living crisis, surging inflation and energy costs. Particularly, drink price inflation is outpacing food inflation for pub and bar restaurant operators. According to Lumina, drink prices on menus have increased +8% from April to July 2022, following increases in alcoholic beverages including lager and cider.

How to offset these issues

“We have reduced energy consumption by around 10%, and I’m hoping for another reduction of 5%-10%,” Watson says. The CPG is also now pushing up its food and drinks prices; “We don’t want to push them up too high though, because we’re conscious that the consumer is also facing their challenges.”

Overall, price increases across the group have been “very modest” to retain attractiveness to customers from a pricing point, with liquor prices in particular growing by about 3%-4%.

Moreover, Lumina reveals that value will be a key focus for pub operators and consumers in the coming months. There has been a +5ppt increase in consumers being value-led, with value for money also increasing as a top consumer need.

“Consumers may be going out less, but when they do go out they want to trade up and treat themselves,” Prowse adds. To accommodate this trend, she suggests that pubs can offer meal deals or special offers at slower parts of the day, around lunchtime or the late afternoon, and also tempt consumers with more premium offers.

“Sustainability, innovation, training and digitalisation are being prioritised by hospitality businesses over the next 12 months,” she says. Specifically, investment in estates, digital services and technology will be “key” growth drivers to aid operators in driving spend per head whilst creating more efficient operations in the front and back of house, contributing to cost management.

Recently, the CPG revealed that it needs to adopt a “more entrepreneurial approach” to how it retails its pubs and how the group further embraces technology. Why is this? “We want to focus on getting large bookings coming in,” Watson says. “We’re a bit behind the curve on this, and we see this as an opportunity to increase our revenues by increasing our pre-book sales.”

To enhance the CPG’s tech offerings, the group is relaunching the City Club app, its member’s payment system which offers a 5% discount. “The app did really well during Covid because there was no bar service and everyone had to order at the table,” Watson says. “However, when we got back to normality, the app was put on the back burner.”

Nevertheless, CPG still has ambitions of offering its successful order and pay system with additional membership benefits to run alongside the 5% reduction, and this initiative is aiming to create 20% of revenues for the group.

“It’s a great time to be investing in digital. In the front house, research has shown that consumers usually spend more if ordering via an app versus with a server. This could be around more push notifications, reminding consumers online about possible drinks that they might want to trade up to,” Prowse imparts. This also negates the need to have servers, therefore improving cost management of labour, especially in the back of house.

Meanwhile, consumers are reducing their alcohol consumption. “We’ve seen the outbreak of more contemporary pub menus and an expanded drinks range to appeal to those consumers.” All in all, this creates an experiential and competitive socialising edge to pubs to give people more reasons to visit and encourage higher spend.

As such, the CPG is being “more creative” in its menu development. This involves increasing its chef’s involvement in menu content, and offering more menu specials to take advantage of products that are “less expensive” at the time. “We are putting more flexibility into the menu which allows us to be nimble and take advantage of particular products which aren’t going up as much as others,” Watson shares.

Outlook for the rest of 2022

Off the back of the pandemic, businesses are increasingly offering hybrid-working, meaning a larger proportion of employees are working from home in suburban areas. “This has opened up opportunities for local pubs to compete as a third space, especially throughout the week,” Prowse reveals. “Operators have adapted and offered hot desks, bottomless coffee, fast Wi-Fi and lunch deals throughout the week to encourage weekday footfall.”

Looking ahead, operators are targeting expansion on more premium pub concepts, Lumina Intelligence shares, and to deliver value through good quality products and services.

At the same time, the CPG is focussing on growing organically through improvements and growing sales in its existing pubs. “We are likely going to slow down on acquisitions. We have £30m of bank facilities to go and buy more pubs, but we’re being very cautious,” Watson discloses. “The best way to grow is to focus on the pubs we’ve got, implement the improvements that we talked about, and grow ourselves that way.”

Furthermore, the end of 2022 will see the FIFA World Cup take place over Christmas, fostering an increased appetite for pub and bar events. “It’s all about having a well-managed and weatherproofed outside space, and maybe screens outside for the football screenings to encourage consumer footfall across the winter months,” Prowse says.

She concludes: “My advice is to go back to basics and just focus on delivering good quality and consistent experience, and to really know who your hyperlocal consumer is to really please that local person that’s coming to your venue.”