The UK’s second biggest pubs group has admitted that the cost of helping out landlords struggling in tougher trading conditions was putting profits under pressure.
West Midlands-based Enterprise Inns, which has around 7.500 tenanted pubs, expects to spend in the region of £8 million this year aiding licensees dealing with the impact of the smoking ban, a consumer spending squeeze and rising costs.
But the Solihull-based group said declining beer volumes and increased assistance to landlords, “had inevitably put some pressure” on underlying earnings.
Pubs are also faced with extra pressure from Government hikes in alcohol duty - which Enterprise criticised as an “ill-conceived” move doing little to tackle anti-social drinking - and cheap supermarket drink sales.
“Consumer confidence is low and the rising costs of food, fuel, mortgage costs and taxes have put increasing pressures on disposable income and discretionary spend,” it added.
Chief executive Ted Tuppen said that “less than ten per cent” of its landlords – around 750 – were being aided by the group’s business recovery scheme.
Under the scheme, licensees are given discounts on beer and rent concessions for three months, freeing up cash to spend on improving their pubs.
Enterprise’s shares slipped three per cent, but the firm insisted its business model was “robust”, adding that there was “no material deterioration” in the financial health and sustainability of its licensees.
Mr Tuppen said: “In the pub industry some pubs are just storming along but the majority are working a lot harder than they were and standing still.” The chief executive said the pub sector was seeing “tough times”, but added that “less than 100” of its landlords had turned their backs on the business so far.
“The analogy I use is farming – if a farmer has a bad year because it rains, they don’t sell their farm.”
Enterprise added that it had made “good progress” on the work necessary to become a tax-efficient real estate investment trust (REIT) after Revenue officials rubber-stamped the move in May.
The group is now set to seek approval from stakeholders for the conversion, before the board takes a final decision on whether to become the UK’s first pubs group to take on REIT status.
But the firm’s snapshot of the difficult trading conditions hit pubs firms elsewhere on the stock market, with Punch Taverns down more than ten per cent and All Bar One owner Mitchells & Butlers dropping nearly eight per cent.
Landsbanki analyst Mark Reed said of Enterprise: “It looks like consensus estimates may tweak down.
“We are less convinced than others about the resilience of the business model, and view today’s trading update as downbeat.”
Meanwhile, Mr Tuppen launched a scathing attack on the supermarket industry on over its ‘irresponsible attitude’ towards selling cut-price alcohol and using heavily discounted multi-packs of beer and strong lager to entice people into its stores.
“Using alcohol as a loss-leader to attract people into your stores is not responsible retailing in my view,” he said.
Mr Tuppen stopped short of naming the supermarket chains in question, but most of the majors now offer some form of discount on multi-packs of beer and lager, while there are ongoing and widespread promotions on wine and spirits.